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NFP Exceeds Expectations

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Last Friday’s NFP data showed a strong overshoot in new US jobs created last month, but the Fed’s monetary policy will be determined more by the impact of Europe’s war and inflation.

February 2022 Non-Farm Payrolls Data Release

Last Friday saw the release of the monthly US non-farm payrolls (NFP) data for February 2022. This data is often closely watched by markets for clues as to the state of the US labour market and economy, and as such, the data can influence the Federal Reserve’s monetary policy. However, it has been a long time since NFP releases tended to materially move markets, and last week was not really an exception, although the release did push the US Dollar Index up to its key resistance level at 12293 from which is quickly reversed, ending the day lower than it was at the time of the release.

The key headline was the creation of 678,000 net new jobs, considerably higher than the previous month, while the consensus forecast by analysts expected as little as 407,000. This was a sizable overshoot, but markets barely reacted. Average hourly earnings remained flat, although an increase of 0.5% was expected. The US unemployment rate at 3.8% is at a 22-month low so the US labour market is tightening and that is no surprise as everyone already knows it is.

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Market Reaction to NFP Data

Basically, markets barely reacted, or at least the price movements following the release were proportionate to the price action already happening in all major assets such as the S&P 500 Index or the US Dollar Index. This is because the economic impact of the war in Ukraine is massively pushing up the prices of energies and commodities, which can be expected to fuel an already historically high inflation rate, and these developments are going to be far more important in influencing the Federal Reserve’s monetary policy than the US job market right now.

Markets will be focused on next Thursday’s US CPI (inflation) data, which is already at a 40-year high. The consensus forecast is for a month on month increase of 0.8%, which will push the annualized rate even higher than the current 7.5%. Of course, this data will not even include the current price hikes driven by rising commodity and energy prices, so the real current figure can be expected to be even higher.

What Does This Mean for Traders?

Traders should ignore the NFP data and, at least until Wednesday’s release of US CPI (inflation) data, trade in line with market sentiment. Prevailing market sentiment expects to see soaring agricultural commodities and energies, especially in Wheat and Crude Oil, and a very weak Euro. These trends have very little to do with NFP data, which is almost ignored as analysts try to understand the risks arising from the current war in Ukraine, and the global implications of commodity shortages and the semi-exclusion of Russia and its currency from the global monetary system.

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