Global markets await crucial U.S. labor market data amid uncertainty over Trump's policies. January payrolls are expected at 170,000, impacted by LA wildfires and cold weather. Meanwhile, gold hits new highs at $2,880/oz on safe-haven demand. Fed officials maintain a "wait and see" approach, considering both rate hikes and cuts as possibilities depending on economic conditions.

U.S. Labor Market Data: A Key Test for Markets Amid Trump-Era Uncertainty

While global markets continue to search for direction amid uncertainty surrounding the potential policies of U.S. President Donald Trump, upcoming U.S. labor market data could provide a crucial clue regarding the market's trajectory in just a few hours.

The report, published by the U.S. Bureau of Labor Statistics, will include January figures for nonfarm payrolls, the unemployment rate, average hourly earnings, and other key labor market metrics.

According to the median projections of economists surveyed by Bloomberg, payrolls are expected to have increased by 170,000 in the first month of the year. This follows two consecutive months of gains exceeding 200,000, which partially reflected rebounds from hurricanes and labor strikes.

However, January's figures are also likely to reflect the temporary effects of wildfires in Los Angeles and unusually cold weather conditions across other parts of the country, making the data harder to interpret.

Bloomberg Economics estimates that these factors subtracted approximately 16,000 jobs from January's numbers. Morgan Stanley economists are slightly more pessimistic, projecting that the wildfires reduced employment by 40,000 and the cold weather by around 30,000, bringing payroll growth down to 140,000.

That said, the distinguishing feature of this month's report is that it will also include revisions for the 12 months through March, as well as the so-called birth-death adjustments from March to December. The preliminary estimate released in August suggested that annual revisions through March would lower payroll figures by 818,000—the largest downward revision since 2009.

However, today's actual revision is expected to be between 600,000 and 700,000, which could ease some labor market concerns. Meanwhile, birth-death adjustments from March to August are anticipated to be revised down by 234,000.

Overall, the upcoming data is not expected to change the prevailing narrative that the labor market is cooling but remains resilient. While temporary factors may have weighed on January's figures, history suggests that this decline will likely reverse in the coming months, particularly as demand for construction workers rises in the aftermath of the Los Angeles wildfires.

Nevertheless, any decline in payroll figures could lead to market volatility. Federal Reserve officials remain committed to pausing rate cuts until they see further progress toward their inflation target, given the uncertainties introduced by the new administration—as long as the labor market remains strong. Recent Fed statements indicate that policymakers are considering risks in both directions.

Dallas Fed President Lorie Logan emphasized the stability of the labor market but stated that the Fed would likely lower rates if conditions deteriorate. Chicago Fed President Austan Goolsbee noted that both upside and downside risks remain on the table. While he acknowledged that a weakening labor market could accelerate rate cuts, he also did not rule out the possibility of rate hikes if the economy overheats.

Meanwhile, Richmond Fed President Thomas Barkin pointed out that the current environment of low hiring and low layoffs may not persist. He suggested that the labor market could break in either direction—toward stronger hiring or increased layoffs. Like his Chicago counterpart, Barkin reiterated that rate hikes remain a possibility, though he added that current economic conditions do not support such a move.

The key takeaway from Fed officials' comments is that, due to the uncertainty caused by Trump's policies, they prefer to maintain a "wait and see" approach unless a significant deterioration in economic conditions occurs. They are reluctant to rule out any possibilities at this stage.

Ultimately, traders will assess tonight's labor market data to gauge where Fed officials' views may be shifting. Given the prevailing belief that Trump's policies could fuel inflation, a stronger-than-expected payrolls report could undermine expectations for rate cuts—or even increase speculation about rate hikes—potentially boosting the U.S. dollar.

Conversely, signs of labor market weakness could strengthen bets on an earlier rate cut, putting downward pressure on the dollar.

Gold Surges Amid Uncertainties: Will It Hit $3,000?

Donald Trump's moves regarding tariff policies, which could fuel inflation and disrupt global supply chains, continue to shake global markets. Additionally, his statements on Greenland, Canada, the Gulf of Mexico, Iran, and most recently, the Gaza Strip, are fueling concerns over geopolitical risks.

Gold remains a beneficiary of rising economic and geopolitical concerns, with safe-haven demand pushing it to an all-time high of over $2,880 per ounce during Wednesday's session. As uncertainties continue to weigh on global sentiment, safe-haven demand could stay strong, further boosting gold's appeal.

On the other hand, expectations that Trump's policies could drive inflation higher—and in turn, force the Fed to keep interest rates elevated for longer—are keeping the U.S. dollar strong. Meanwhile, central banks are likely to continue purchasing gold reserves to protect their local currencies against the dollar's strength.

Traditionally, strong dollar and high interest rates suppress gold demand. However, in the current environment, demand for gold appears to have the potential to remain robust despite these headwinds. Analysts at Citigroup Inc. predict that gold prices could reach a record $3,000 per ounce within three months.

Traders will be closely watching tonight's payroll data for short-term direction cues.