US jobs report preview: payrolls expected to surge after recent stimulus and vaccine progress

The March US jobs report due out on Friday is expected to bring a fresh bout of optimism over the economic recovery, with the recent $1.9 trillion stimulus package helping to lighten the load as the vaccination efforts gradually kick-in.

The ascent in treasury yields highlights growing confidence in an economic recovery, although we are yet to see that recovery come to fruition. There are hopes that Fridays jobs report provides exactly that, with financial markets across the board likely to respond as the US seeks to ramp up the exit from this protracted period of economic struggle.

That jobs report will be released at 1.30pm UK time on Friday 2 April.

Vaccination efforts and stimulus package bring optimism

Markets have high hopes for Fridays jobs report, with forecasts pointing towards a third consecutive increase in the payrolls figure.

With Wednesday’s Automatic Data Processing (ADP) payrolls release coming in at a six-month high of 517k, we are seeing clear evidence that the US could soon be ushering in the kind of economic resurgence the fixed income market has clearly been calling for.

As we can see below, while the ADP and headline payrolls figures may often diverge, Wednesdays sharp rise does highlight a general direction of travel that seems likely.

The recent $1.9 trillion stimulus package agreed in congress does provide the hope that this vaccine-led recovery will be turbocharged in the coming months.

The package was approved on 11 March, meaning that any benefits will relate to the latter part of the month. Given the fact that this data will only truly reflect the latter part of March in its revised form, there is a good chance that we will only see the true picture in a months time.

Nevertheless, with stimulus and vaccine efforts helping to drive higher spending, there is likely to be a pick-up in hiring over the course of the month. The latest purchasing managers index (PMI) survey highlighted exactly that, with 'strong' hiring across manufacturing, and the 'the steepest overall jobs gain since December'.

What is expected?

Much like Wednesday’s strengthening ADP payrolls figure, we are expecting to see a notable rise for the headline non-farm payrolls (NFP) figure on Friday. Markets forecast a figure 680k, up from the 379k jobs number in February.

Another area of interest comes from the participation rate, with a jump to 61.7% (from 61.4%) bringing significant consequences elsewhere within the report. A rise in participation rate is an important sign of strength, but that can dampen any improvements in the unemployment rate.

Nevertheless, forecasts point towards a significant improvement to the unemployment rate (6% from 6.2%), which would be impressive if it comes alongside a jump in the participation rate. Elsewhere, the average earnings figure provides another area of note, with predictions of a significant decline in the figure (4.7% from 5.3%) providing clues as to the type of jobs we are seeing come back onto the market.

The decline in earnings need not necessarily signal a negative trend for the US per se, but instead highlights how those lower earnings jobs that have been hit hard are beginning to come back. In particular, the decline in average earnings should signal a potential resurgence for services sector jobs.

Dollar index technical analysis

The dollar index has been pushing higher since its 2020 decline into the 87.93-89.71 support zone. That area has been a turning point for the dollar index on a number of occasions over the years, and there is a good chance that it will mark the bottom for this market.

A break up through the 94.79 swing high would bring greater confidence of a bullish reversal for the dollar. It is notable that we are seeing the stochastic break through the 20 threshold, bringing a signal that has been very profitable for bulls as highlighted by the vertical lines on the chart below.

With the US likely to lead the economic recovery amid a wave of stimulus, there is a good chance we will see the dollar continue to gain ground from here.

For that bullish view to gain momentum, we will need to see a break through the 94.79 swing high. Instead, we have found ourselves faced with a key 76.4% Fibonacci level at 93.45. As such, the reaction to this level will be key in determining whether traders see a bearish continuation coming back into play or not.

S&P 500 technical analysis

The S&P 500 continues its ascent, with the index heading towards record highs once again this week. That rise brings trendline resistance into question, yet it is clear that each pullback appears to be greeted with buyers in any case. With that in mind, bullish positions are favoured unless price breaks below the 3853 swing low.