As far as NFP‘s go (the “nonfarm payrolls” component of the Employment Situation Report), today’s is a big one for several reasons. Before discussing specifics, it’s worth mentioning that NFP is ALWAYS important and always the single most important economic report each month, in addition to being one of the most important market events. On some months, especially in the past, it was often the most important economic event of the month, but it happens to share some high profile company in September.
After the rally that followed the FOMC Minutes two weeks ago, there was really nothing major on the calendar until yesterday and today. Bernanke’s Jackson Hole speech last Friday was the potential exception to this, but the Fed Chairman was unlikely to telegraph QE3 details to any greater degree than they already had been. So the GAP IN TIME between big market movers is the first unique ingredient making today’s report stand out. It’s given markets a chance to grind sideways between 1.69 and 1.55, the same range that prevailed in June, building anticipation.
Then there are the events that added to the broader sense of anticipation. One of them has already come and gone in the form of yesterday’s ECB Announcement. But the announcement quickly lost importance when it became increasingly clear that the ECB was intentionally leaking the details ahead of time to give themselves a better shot at managing expectations. They did a fantastic job of this and markets scarcely traded what could have been a major market mover. Thus the ECB passed its chips to NFP to play as this week’s key event. That’s the second unique ingredient.
Third we have the immediate implications of today’s jobs report in that they go beyond their normal scope of connoting a particular level of economic strength or weakness. That’s because this time around, NFP is a relative proxy for the magnitude of action in next week’s key event, the FOMC Announcement, Economic Forecasts, and Press Conference. In other words, the Fed has clearly stated that further easing is likely if the economy doesn’t strengthen significantly. NFP is the most direct commentary on that strength (or lack thereof). Ipso facto, the NFP isn’t just playing for itself, it’s playing for next week’s FOMC as well.
That makes it huge. We could find other reasons (like the report falling in the first week that most vacationing market participants are back), but these are enough to differentiate it from “ordinary” NFPs. Big moves in either direction are always possible with NFP, but are perhaps “even more possible” this time. Keep in mind the notion of POTENTIAL ENERGY though… All we can really ever be firmly convicted about ahead of time is the fact that some events in the future have more potential to move markets than others. This is one of those, but it’s no guarantee that the movement happens. Unless the implications for next week’s FOMC Announcement are clear, that dynamic may keep a lid on the biggest potential movements.