U.S. stocks in the red as NFP data fail to meet forecasts

U.S. stock markets lost ground on Friday following lower-than-expected jobs data. The Nonfarm Payrolls (NFP) data, released on the same day by the U.S. Department of Labour, revealed that during January there were 151,000 new job fillings. However, there were higher expectations prior to the report’s release by analysts who were expecting a much healthier number of 190,000. In addition, January’s data was also significantly lower than the previous month of which jobs fillings were 262,000. Given that the NFP data is one of the most important economic factors influencing the Federal Reserve’s (Fed) monetary policy decisions, there now appears to be a lower likelihood of an interest rate increase by the Fed during their next meeting of 15 March.

Despite the discouraging January’s NFP data, the release of a separate report by the Department of Labour showed that the unemployment rate for the same month fell to 4.9%. The last time that the rate was under the 5% level was back in 2008 when the financial crisis began, while January’s average hourly earnings increased by 0.5% to $25.40.

It seems labour market data for the first month of 2016 has been a mixed bag, and so it is hard to make any safe assumptions for how the Fed will take it. It is risky to just estimate that the Fed might pull back from an interest rate increase in March just because of the weak payrolls data and one would think that the world’s largest economy policymakers will also consider the recovery of the unemployment rate and salaries. Hence, Friday’s data alone are not enough to affect the Fed’s decision on a subsequent and marginal interest rate increase, upcoming economic performance reports between now and March will also be taken into account.

Stock markets reacted immediately to the mild NFP data, the Dow Jones Industrial Average dropped on Friday by 1% to 16,128, while the S&P 500 and NASDAQ also decreased by 1.5% to 1,874.76 and 3% to 4,021.76 respectively.

Across the other side of the Atlantic, the Eurozone’s unemployment rate fell to it’s lowest level in four years despite the worrying state of the global economy. The report released on Tuesday by Eurostat revealed that the overall jobless rate for December 2015 fell to 10.4% in comparison to 10.5% during the previous month, this translates to a reduction of people without a job by 50,000. Within the Eurozone group, Greece has the highest unemployment rate of almost 25% while the lowest rates were held by Germany at 4.5%.

Analysts have been forecasting a higher Eurozone unemployment rate given China’s slowing economic growth and instability of the financial markets, and so it would not be huge surprise if upcoming unemployment data fell back in the red. The European Central Bank (ECB) is certainly ready to act with additional economic measures in case it is needed according to its President Mario Draghi. The EUR/USD last week increased sharply by more than 3% and ended last week’s trading at 1.11547. Is this just a temporary jump or are you viewing this as the beginning of an upwards trend?

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