Non-farm employment data becomes the market focus; fluctuations in US non-farm employment figures may trigger a three-way correlation among the dollar, US stocks, and gold.

The U.S. Bureau of Labor Statistics will release its first major report since the government reopened on December 16, including October non-farm payroll data and the full data for November. This report is considered one of the most influential economic indicators in recent times, and the market is closely watching its direction.

Contradictory Signals Between Market Expectations and Seasonal Adjustments

The market generally expects U.S. non-farm employment to decline by 10,000 in October, but anticipates a strong rebound in November, with an increase of 130,000. However, Citigroup economists question the authenticity of this rebound, believing that this recovery mainly results from seasonal adjustment factors rather than a genuine improvement in labor demand. This perspective suggests that the seemingly strong rebound in the data may not truly reflect the health of the employment market.

Rate Cut Expectations and Federal Reserve Policy Divergence

The latest Fed dot plot indicates only one rate cut is planned for 2026. However, traders have limited confidence in this forecast, with the market widely betting that the Fed will implement two rate cuts next year, which is one more than the Fed’s official hint. According to real-time data from CME FedWatch, the market expects the next rate cut to occur in April 2026, with a 61% probability.

George Catrambone, Head of Fixed Income at DWS Americas, stated, “The direction of interest rates will depend on the labor market trend, so I will be paying close attention to the non-farm payroll data on Tuesday.” This reflects the critical role employment data plays in the Fed’s policy decisions.

Kevin Flanagan, Head of Fixed Income Strategy at WisdomTree, also warned that this week’s employment report might be affected by the government shutdown, limiting data quality. He advised investors to focus on the December non-farm payroll report scheduled for January 9, 2026, which may have higher reference value.

Chain Reaction of U.S. Non-Farm Payroll Data on the Three Major Assets

The strength or weakness of non-farm employment data will have symmetrical impacts on the U.S. dollar, U.S. stocks, and gold markets:

Scenario exceeding expectations: If U.S. non-farm payrolls grow beyond market expectations, it will reinforce the Fed’s rationale to maintain high interest rates, thereby strengthening the dollar. Meanwhile, the high-interest-rate environment will pressure U.S. stocks, and gold, as a non-interest-bearing asset, will face downward pressure.

Scenario below expectations: If U.S. non-farm payrolls grow less than expected, it will boost market expectations for a Fed rate cut, leading to a weaker dollar. Conversely, U.S. stocks are likely to see valuation gains, and gold will benefit from the dollar’s decline and rise.

Morgan Stanley’s outlook leans toward an optimistic rate cut expectation, predicting the dollar will fall 5% in the first half of 2026, implying there is still ample room for further weakening and sufficient space to price in a deeper rate cut cycle.

Citigroup holds the opposite view, believing that the U.S. economy’s fundamentals remain strong and are likely to continue attracting international capital inflows, thus supporting the dollar. Citigroup stated in its report, “The dollar cycle recovery potential in 2026 is strong,” contrasting sharply with Morgan Stanley’s forecast of a weakening dollar.

Investors need to recognize that the release of U.S. non-farm payroll data will largely determine which of these multiple institutional forecasts will be closer to reality.