Recent research has found that US data releases on nonfarm payrolls, the unemployment rate, initial unemployment claims and consumer sentiment tend to account for the largest moves in both US and British markets. US nonfarm payroll numbers tell us how many people are working (or not working) outside of agriculture. The statistic is produced by the US Bureau of Labor but excludes government employees, private household employees, and non-profit employees that provide assistance to individuals, as well as the farm workers. It's reckoned that it accounts for about 80% of the workers who produce the gross domestic product (GDP) of the USA.
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US economic data is regularly released at 1:30 PM GMT and one of these is the US nonfarm payroll employment figure. Why is this figure so important? Many of the companies may be listed in London but FTSE 100 companies derive much of their earnings from the United States. This is particularly true for the pharmaceutical, telecom, and banking companies that dominate the index. Therefore it should come as no surprise that the state of the US economy can move markets in the UK. And one of the key indicators of the US economy is the nonfarm payroll employment figure, which is announced on the first Friday of each month. Often, the markets have already priced in the expected number, which smoothes out any swings; however in some cases the real number can be unexpected and in such cases this can create a big movement in one direction. It's even possible for the markets to show large swings when the figures are in line with expectations.
The great thing for traders about the release of the nonfarm payroll numbers is that it is virtually guaranteed to produce a tradable move. It not only moves the stock markets, but its effects can be seen on the Forex market on all major currency pairs, and particularly on the GBP/USD. In fact, this news is traded more on the currency markets than on the stocks and shares markets. Whether you can make money on it is not guaranteed, as this requires that you trade in the right direction. One strategy is to wait while the initial swings happen, and determine the prevailing momentum. Depending on your trading style, you should look for a signal that the market has decided what direction to take.
This requires a day trading strategy to take full advantage of the swing. It's best to totally ignore the first 15 minutes after the news is released, and it may take an hour of trading before the direction is clear. You should look for an inside bar, perhaps on a 15 minute chart, and when a subsequent bar closes above or below the inside bar, that is an indication of the market direction, and signals a trade can be attempted. You need to be disciplined in stopping out your trade if the signal proves to be a fake, and the effect of the news release will be over by the following Monday, making this a very short term strategy. If you choose to hang on to your position after Monday, then that would be for reasons other than trading the nonfarm payroll numbers.
We can take as an example an extract from Shares Magazine; the impact on the FTSE 100 was clear from the release of the February figure on 10th March. In February, nonfarm payroll employment grew by 243,000 which, according to reports, was above market expectations. The FTSE 100 was weak on the day but put on 60 points between 1:30 PM and 4:30 PM. The effect is less pronounced for the FTSE 250 and the FTSE small cap indices, where constituents are much more skewed to the UK economy.
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