US jobs report preview: vaccine optimism likely to provide support through volatile time

The January US jobs report is due out at 1.30pm (GMT) on Friday, 5 February. That report comes at a time when the US economy continues to struggle with the global coronavirus pandemic.

Unfortunately while Covid-19 cases have seemingly turned a corner in the US, ongoing restrictions on businesses will undoubtably hold back the jobs outlook for some time yet. However, with the vaccination process well underway, there is a tone of optimism within markets over exactly how 2021 will play out.

With that in mind, weakness in near-term economic data is likely to be taken with a pinch of salt. Coming off the back of a worrying -140,000 payrolls figure last month, this month is expected to provide some form of rebound in the data. However, just like how dour first quarter (Q1) 2020 figures were overcome in favour of an optimism of future growth, there is likely to be a somewhat forgiving approach as long as the vaccination process remains on track.

Tune in to IGTV live announcement and analysis this Friday at 13:25 UK time on the IG platform.

ADP and jobless claims highlight January improvement

Last months ADP (-123,000) and headline (-140,000) payrolls data provided plenty of questions around the current US economic picture. However that appears to be turning around, with Wednesdays ADP non-farm payrolls figure jumping to 174,000 (December payrolls also revised sharply higher to -78,000). While any correlation between the ADP and headline payrolls numbers can be unreliable at times, markets are expecting a similar recovery this Friday.

The non-farm payrolls figure is predicted to come in around 45,000, from a nine month low of -140,000. Remember to keep a close eye on the December figure too with the ADP upward revision highlighting the potential for a similar move this time.

Unemployment is expected to remain at 6.7%. However, another area of interest comes in the form of average earnings, with last months sharp rise into 0.8% expected to tumble back to 0.3%. Looking back to the experiences of 2020, a sharp rise in average earnings came hand in hand with widespread restrictions on services sector jobs.

Low wage, high tip jobs in that sector will be volatile over the coming month, with a decline average earnings signalling a reopening process. While the month-on-month figure can be volatile, it is worthwhile watching the yearly comparison.

Dollar index technical analysis

The US Dollar has been on the rise since the turn of the year, with the greenback rising up through the crucial 90.91 resistance level to bring about an inverse head and shoulders formation. That rise looks likely to continue for now, with the current rise looking to provide a retracement of the wider decline from 94.79.

With that in mind, watch out for further upside from here, with a break back below 90.02 required to end this trend.

S&P 500 technical analysis

The S&P 500 has been regaining ground over the course of this week, following a breakdown through trendline and horizontal support.

The subsequent rise is bringing price back towards the 3870 resistance level, which needs to be broken to negate the bearish signal that came with the wedge breakdown. As such, the ability to break higher or reverse lower from this zone will be key in determining forthcoming price action.