Everything You Need to Know About Payrolls by Reuters

Market Outlook: Key Factors Ahead of Payroll Report

A look at the upcoming market landscape reveals that Friday’s U.S. payrolls report is poised to make a significant impact.

The anticipation surrounding the August non-farm payroll data is heightened, especially following Federal Reserve Chair Jerome Powell’s remarks emphasizing that policymakers are wary of any further deterioration in the labor market, suggesting imminent rate cuts could be on the horizon.

Economists predict an increase of 160,000 jobs and a slight dip in the unemployment rate to 4.2%. However, recent weaker data hints at potential downside risks, which has sparked speculation about a possible half-point rate cut during the upcoming meeting on September 18.

Currently, futures indicate a 40% likelihood of a 50 basis point cut. A disappointing payroll report could increase that probability while pushing bond yields lower. Conversely, a report that meets or exceeds expectations might eliminate the possibility of such a rate cut, likely leading to a decline in bond prices, though a 25 basis point cut seems almost certain regardless of the outcome.

Market dynamics are also complicated by recession concerns. A weak report could lead to a substantial rate reduction, yet it may simultaneously heighten fears of an economic downturn, leaving investors unsure of how these sentiments will play out in the markets.

The Japanese yen faces significant implications as well. A lackluster payroll report could cause it to surpass a crucial resistance level of 141.66 per dollar, marking its peak for the year. Conversely, strong employment data could reverse the yen’s recent 2% gains.

Meanwhile, oil prices are on track for their worst week in over a year, as positive reports regarding U.S. inventories failed to uplift the market, which appears more focused on economic uncertainties. A robust payroll report would be beneficial to help keep prices above $70 a barrel.

Asian markets showed only modest fluctuations on Friday, with Taiwan standing out with a 1% increase. Bonds have maintained gains throughout the week, while the dollar is experiencing some losses.

In the U.S., Nasdaq futures slipped by 0.5%, and European markets are expected to open quietly, with EUROSTOXX 50 futures displaying minor fluctuations.

While payroll data will capture most attention, investors will also look for insights into U.S. interest rates from Federal Reserve officials Christopher Waller and John Williams, who are scheduled to speak later in the day.

Ultimately, Friday is likely to be pivotal in determining the prospects of a 50 basis point cut by the Federal Reserve.

Key Developments to Watch:

• Germany’s industrial output and trade data for July
• Revised Eurozone GDP data for Q2
• U.S. non-farm payroll data for August
• Speeches from Fed officials Christopher Waller and John Williams