As the market awaits the release of the US jobs data, the USD is showing signs of weakness, but stocks are down and bond markets are up, causing 10Y yields to drop. This shift in the market reflects concerns about a potential economic slowdown leading up to the jobs report. Following Fed Chair Powell’s recent comments at Jackson Hole, indicating the Fed’s willingness to cut rates, investors are looking to the jobs data to determine whether a 25 or 50bps cut will occur on the 18th, according to Scotiabank’s Chief FX Strategist Shaun Osborne.
What Are Analysts Expecting?
Market consensus is predicting a modest increase in payrolls, with estimates around 165k and a slight decrease in the unemployment rate to 4.2% for August. Scotia’s prediction is slightly below the consensus at 140k. However, these numbers may not be significant enough to justify a 50bps rate cut. A 165k gain is lower than the 3-month average, but the difference between a 4.2% and 4.3% unemployment rate could be negligible.
Weak data from ADP, JOLTS, and the Beige Book suggest a potential for disappointing overall data. If non-farm payrolls (NFP) numbers are closer to July’s 114k, the likelihood of a 50bps rate cut increases. The market has already priced in a 35bps easing risk for the September decision, but a further decrease in data quality could lead to greater expectations for easing. However, it may not add to the 100bps of anticipated Fed easing already factored into swaps for the rest of the year.
It’s important to note that Fed Governor Waller will provide immediate feedback on the jobs data at 11ET. Depending on the data outcome, the USD could either drop towards the 100 level on weak data or rise to the 101.50/102 zone if the data exceeds expectations and reduces the anticipated 100bps of cuts.
Analysis and Conclusion
The upcoming US jobs data release is crucial for investors as it could impact the Fed’s decision on interest rates. A weaker-than-expected report could lead to a significant rate cut, potentially affecting the USD and overall market sentiment. On the other hand, better-than-expected data may result in a more modest rate adjustment. It’s essential for investors to closely monitor the jobs data and be prepared for potential market fluctuations based on the report’s outcome.