How relevant is US labour data?

On Wednesday data showed the US economy added 205,000 private jobs in January, according to the ADP employment report, which was weaker than the previous month’s 257,000 additional jobs, yet a length in front of the consensus projection for 193,000.

The month of January saw the S&P 500 and the Dow Jones Industrials tumble by more than 12%, alongside a drop in oil prices to below $30 a barrel - for the first time since 2003.

The US empire manufacturing index registered a significant dip, to -19.37 points, durable goods orders contracted by 5.1% month-on-month, and growth prospects as reflected in the manufacturing and services PMIs stagnated.

In parallel, economic growth for the last three months of 2015 printed at 0.7% quarter-on-quarter annualised, down from the 2% read for the previous quarter.

Not long ago, the US sovereign bond market was pricing in a 50% probability for the Federal Reserve to follow up on its tightening plan with the second rate hike in March.

Nowadays, the market assesses less than a 15% chance for a March hike and no longer sees the Fed pursuing further rate rises any time before December 2016.

The ‘one and done’ scenario seems now to be a base-case when it comes to market expectations. The US ten-year sovereign yield dived to a 12-month low as the Fed voiced concern regarding the gloomy macro-economic picture.

Although the economic recovery in the US appeared to be suitable for the monetary policy normalisation, the deteriorating situation overseas has finally become a barrier for the Fed.

Investors are mostly worried that the US recovery may be jammed by the fall in commodity and oil prices and a visible reversal in the global pattern of growth, especially with the rate of growth in China's GDP falling below 7%.

In this context, even the performance of the US labour market is left ranking in second place when looking for drivers for Fed action.

The US non-farm payrolls (NFP) will, of course, be an exciting and tradeable moment for short-term traders if only borne out of habit and the sake of watching the data fall.

However, the US jobs data may have lost its pertinence for macro managers and there is significant pessimism vis-à-vis the next release.

The US economy is expected to have added 190,000 non-farm jobs in January; this is over 100,000 less than December's print of 292,000.

A soft number on Friday may eliminate any possibility of a Fed hike in 2016, whereas a fourth straight month of positive surprises could improve the US economic outlook, bring the Fed hawks back into the game and revive expectations that the Fed could at least carry on with a 25-50 basis point rise before the end of the year.

However, if the focus is elsewhere, will this even be relevant to the Fed's thinking on interest rates?