The December 2024 employment report is due from the US on Friday, January 10, 2025 at 08:30 AM ET, 13:30 GMT.
Looking at the range of expectations compared to the median consensus (‘expected’ in the image above) for key data:
Data results that fall outside the market’s low and high expectations tend to move markets significantly for several reasons:
Surprise factor: Markets often price in expectations based on forecasts and past trends. When the data deviates significantly from these expectations, it creates a surprise effect. This can lead to a rapid revaluation of assets as investors and traders re-evaluate their positions based on new information.
Psychological Influence: Investors and traders are influenced by psychological factors. Extreme data can trigger strong emotional reactions, leading to overreactions in the market. This can amplify market movements, especially in the short term.
Risk reassessment: Unexpected data can lead to risk reassessment. If the data significantly underperforms or beats expectations, it can change the perceived risk of certain investments. For example, better-than-expected economic data can reduce the perceived risk of investing in stocks, which can lead to a market rally.
Launch of automated trading: In today’s markets, a significant part of trading is performed by algorithms. These automated systems often have preset conditions or thresholds that, when triggered by unexpected data, can lead to large-scale buying or selling.
Impact on monetary and fiscal policy: Data that deviate significantly from expectations can affect the policies of central banks and governments. For example, in the case of NFP due today, a weaker jobs report will fuel speculation of more and possibly more rate cuts by the Federal Open Market Committee (FOMC). A stronger report will dampen such expectations.
Liquidity and market depth: In some cases, extreme data can affect market liquidity. If the data is sufficiently unexpected, it could lead to a temporary imbalance between buyers and sellers, causing larger market movements until a new equilibrium is found.
Chain reactions and correlations: Financial markets are interconnected. A significant move in one market or asset class due to unexpected data can lead to correlated moves in other markets, amplifying the overall market impact.