Non-farm employment data at a critical moment: Will the Fed's shift trigger major movements in the US dollar, US stocks, and gold?

On December 16th, after the U.S. government reopened, the first report containing complete non-farm employment data for October and November will be released, revealing significant implications for market liquidity.

The Truth Behind Seasonal Adjustments

The market generally expects October non-farm employment to shrink by 10,000 jobs, while November is expected to rebound with an increase of 130,000 jobs. However, Citigroup economists have dampened expectations, pointing out that this strong rebound is largely due to seasonal statistical adjustment practices and may not reflect an “improvement in actual labor market demand.” In other words, traders should not over-interpret the surface numbers.

【Non-farm employment changes in the U.S. over the past three years show cyclical characteristics】

The Great Divide in Rate Cut Expectations

The latest FOMC dot plot signals are quite restrained — only one rate cut is planned for 2026. However, market traders are betting on the complete opposite scenario: expecting the Federal Reserve to cut rates twice next year, one more than the official hint.

According to real-time data from CME FedWatch Tool, the market prices in a 61% probability that the Fed will cut rates in April 2026. This expectation gap essentially reflects differing market interpretations of the labor market’s future trajectory.

Fixed income investment expert George Catrambone bluntly states, “Interest rate decisions ultimately depend on the strength of the employment market; Tuesday’s non-farm data will be the decisive factor.”

However, Kevin Flanagan of WisdomTree is skeptical, believing that this week’s employment report may have limited value because government shutdowns have complicated data collection. He recommends focusing on the December non-farm employment data to be released by the U.S. Bureau of Labor Statistics on January 9th.

The Butterfly Effect Across Three Major Markets

Non-farm employment data acts like a timed bomb in the market, triggering coordinated reactions in the dollar, U.S. stocks, and gold:

Scenario of exceeding expectations: Strong employment data boosts expectations that the Fed will maintain high interest rates longer, causing the dollar to strengthen and putting downward pressure on U.S. stocks and gold.

Scenario of below expectations: Weak employment data ignites rate cut expectations, leading to a dollar depreciation, while gold and U.S. stocks are buoyed.

Morgan Stanley adopts a relatively hawkish stance, predicting the dollar will fall 5% in the first half of 2026, indicating that the market still has room to price in a deeper rate cut cycle.

Citigroup takes the opposite view, emphasizing that the U.S. economy remains resilient and is expected to continue attracting global capital inflows, enough to support the dollar’s resilience. “We believe the dollar cycle in 2026 has recovery potential,” Citigroup stated.

This conflicting outlook precisely illustrates the decisive influence of non-farm employment data on market pricing — one report, two possible futures.