US jobs report preview: payrolls forecast to surge after recent weakness

The February US jobs report due out on Friday provides traders with a fresh opportunity to gauge the economic recovery as the US President Joe Biden hopes to steer the country out its coronavirus collapse.

Expectations of an economic rebound have helped to drive treasury yields higher over recent weeks, sparking a fresh wave of anxiety for stock market bulls.

Thus, we appear to be back in a position where positive economic data can be viewed as a negative for stocks if it leads to a rise in the dollar and treasury yields.

Against that backdrop, there will be plenty of interest in Friday’s US jobs report as a key gauge of economic health. That jobs report will be released at 1.30pm UK time on Friday 5 March.

Tune in to IGTV live announcement and analysis this Friday at 1.25pm UK time on the IG platform.

ADP and PMI surveys portray mixed picture

This week has brought a raft of economic data points that will help inform us ahead of Fridays jobs report.

The purchasing managers index (PMI) survey has seen outperformance for the US composite index, with the Markit survey highlighting the impressive performance in February.

The Markit image below highlights the fact that containment levels are improving as the vaccination effort continues to develop.

Nevertheless, it is worthwhile noting that the Institute of Supply Management (ISM) services PMI did see a weakening in the employment element.

From the Automatic Data Processing (ADP) payrolls perspective, we saw a somewhat underwhelming figure of 117k (vs >200k forecast).

Despite an upward revision to the December figure, the US jobs market is evidently suffering in the absence of a major stimulus package.

With the January jobs report seeing very weak jobs growth, there is going to be significant pressure on Congress to pass a financial package that could see the jobs numbers improve markedly in March.

What is expected?

Last month saw a worrying decline in the headline non-farm payrolls (NFP) figure, with the reading of 49k signaling that the dire -140k December figure was not just a one-off.

Markets are expecting a more positive figure this time around, with forecasts pointing towards a number closer to 170k.

On the unemployment and earnings front, the we are expecting little change.

With earnings having initially spiked in December as lockdowns hinder services sector employment, we are still yet to see that sharp decline that is likely to come when things really start to reopen.

Interestingly, we have seen the participation rate drift lower over recent months, bringing potential benefits for the unemployment rate.

While a lower participation rate is seen as a negative, it does have the side effect of driving unemployment lower as some stop looking for jobs.

Dollar index technical analysis

The dollar index has been gaining ground as the economic picture takes on a moderately brighter tone. Expectations of a global resurgence this year does raise the prospects of a weaker dollar, yet that has to be balanced by the view that the US economic rebound could see the

The Federal Reserve (Fed) moves earlier than others when it comes to monetary normalisation. The weekly chart highlights that recent rebound, with the dollar approaching the crucial 91.59 resistance level. A break through there signals the potential for a more long-winded move higher for the dollar.

The daily chart highlights the recent break through 91.03, which brings an end to the bearish tone set by the recent head and shoulders formation.

With the price currently testing trendline resistance, we are clearly at a significant crossroads that will help resolve the question of where we go from here.

S&P 500 technical analysis

The S&P 500 has been stifled by rising yields, with the decline of tech particularly hindering US indices. Interestingly, this takes us into a deep retracement zone for the index.

A break below the 3693 support level brings a potential wider reversal into play for the index. However, until that happens there is a good chance we find buyers once again around this 61.8% to 76.4% Fibonacci zone (3796 to 3756).