To The Moon

On November 3rd, the United States released the latest non-farm payrolls data, which showed that the non-farm payrolls increased by 150,000 in October, which is expected to be 180,000. The number of new jobs in September was revised down from 336,000 to 297,000, and the number of new jobs in October was only half of the number of new jobs in September, which was the second lowest since 2022.

The number of new non-farm jobs slowed down beyond expectations, while the unemployment rate rose to a high level since January 2022, which indicates that the hot American labor market began to cool down.

The news came that the strong hawkish policy of the Federal Reserve might be restrained in the face of facts, the rate hike policy might be stopped, and even there was the possibility of lowering interest rates. The price of American ten-year bonds (ZN) soared and the yield decreased. (See the picture below).

Interestingly, WTI crude oil prices showed a strong selling after the release of non-farm employment data. (See the picture below). How to explain this phenomenon?

Non-Farm Payrolls (NFP) is a key economic indicator released every month in the United States, which reflects the changes of Non-Farm Payrolls outside the private sector and government departments. There is usually some correlation between this data and crude oil price:

• Economic Health and Oil Demand: Non-farm payrolls are seen as an important macroeconomic indicator that reflects the health of the U.S. economy. When the number of non-farm payrolls increases, it means that the job market is in good condition, which is usually accompanied by more people being able to spend and consume, and also means more industrial and commercial activities. This has a positive impact on crude oil demand, because economic growth usually leads to an increase in demand for energy.

• Crude oil price and business cycle: Crude oil price is usually affected by business cycle. When the economy is booming, the price of crude oil may rise, because the demand for energy from enterprises and consumers increases. On the contrary, in a recession, the price of crude oil may fall because of the decrease in demand. Non-farm payrolls data provide information about the economic cycle, so it can affect crude oil prices

• Dollar exchange rate: The strong performance of non-farm payrolls data usually leads to the appreciation of the dollar, because it is regarded as a sign of economic health and attracts international capital into the United States. The appreciation of the US dollar may put downward pressure on the price of crude oil, because crude oil is usually denominated in US dollars. A stronger dollar can lower the international crude oil price, especially for non-dollar countries.

Although there is a correlation between non-farm payrolls data and crude oil prices, crude oil prices are also affected by other factors, such as supply and geopolitical events. Therefore, when analyzing the crude oil market, we need to consider many factors comprehensively, not just the non-farm employment data. The relationship between the two may also change in different times and situations.

At present, the world geopolitical situation surrounding the crude oil market is extremely complicated, and the economic development of various countries has completely lost the unified pace in the past. The daily crude oil price changes and jumps up and down, and it is basically difficult to find the trend. In this case, investors must know how to use crude oil derivatives, especially ultra-short-term derivatives, to hedge and protect their investment and trading positions.

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