The Nonfarm Payrolls (NFP) report coming out on April 7th, 2023, will indicate the employment situation in the US. This report is seen as a useful gauge to determine economic trends such as housing starts, inflation, and Gross Domestic Product (GDP). Despite job growth remaining strong, it has started to lose momentum due to the second wave of layoffs since the start of the Covid-19 pandemic.

The Federal Reserve has already been actively tightening monetary policy to combat inflation. In light of this, the market runs the risk of a significant shock to the US economy. This could incentivize the Fed to halt its interest rate hikes. In order to pause the rate hikes, the labor market must become less tight and there must be a decline in core inflation.

When the holiday of Good Friday comes around, so does the NFP report. It is unusual for both to occur together, however, it has happened in the past such as in 2021, 2015, and 2012. Interestingly, the market reacted differently in each instance.

In 2021, the market could anticipate what the Fed would do due to its transparency. In 2015 and 2012, the market was uncertain which ultimately led to a large influence of the NFP on the formation of the market’s expectations. The same is true for the present NFP. The market is divided on whether there will be a 25 basis points or no rate hike in May. Hence, the NFP figures will factor into the market's view of the Fed's monetary decision.

More emphatically, an increase in NFP could indicate a strong inflationary pressure and market investors will be keen to observe the implications this has on the Federal Reserve's plans. With that being said, traders should always approach market participation cautiously, especially during holidays and the period leading up to the NFP.



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