The night before September rate cut: US non-farm data may rewrite market expectations

The US Non-Farm Payrolls report to be released on September 5th is becoming the market’s most关注焦点. The performance of this data is expected to directly influence the Federal Reserve’s decision on whether to cut interest rates in September and the magnitude of such a move.

Consensus Expectations vs. Institutional Divergence

The market generally expects US non-farm employment to increase by 75,000, with the unemployment rate rising from 4.2% to 4.3%, and the year-over-year growth rate of hourly wages to fall from 3.9% to 3.7%. However, major institutions have very different assessments of this data.

Goldman Sachs estimates the new jobs added will be only 60,000, significantly below market consensus. Their historical data research shows that August non-farm payroll data has consistently underperformed expectations. Conversely, US Bank believes the number of new jobs could reach 90,000, above market expectations.

Most notably, Nomura Securities expects this year’s annual benchmark revision to be sharply lowered by 600,000 to 900,000 jobs, meaning that the monthly employment growth over the past few months will be revised downward by 50,000 to 75,000 jobs. Considering the trend of downward revisions at the beginning of each month this year and the lower survey response rate in July, this data also faces a significant risk of being revised downward.

Is a rate cut already a certainty?

According to the CME FedWatch Tool, the market currently prices in a 97.6% probability of the Federal Reserve cutting interest rates by 25 basis points in September, almost a certainty. Further rate cuts are expected later this year, totaling two.

Against the backdrop of Fed Chair Powell’s continued dovish signals, even strong non-farm payroll data will be unlikely to shake the market’s expectations of a rate cut in September. Nomura Securities points out that the Fed is expected to start a gradual, quarterly 25 basis point rate cut from September, rather than a large or consecutive cut, unless there is a sharp rise in unemployment or severe financial stress.

However, if the non-farm data is again significantly revised downward, the market may price in a 50 basis point rate cut in September, which would be a major bearish signal for the economic outlook.

Market reactions may be complex

Regarding the market trend after the US non-farm payrolls data is released, analysts expect a divergence.

If the data underperforms expectations, it will further reinforce the market’s expectation of rate cuts, but also imply a continued slowdown in economic growth, potentially leading to a complex pattern of US stocks rising initially and then falling. The US dollar is expected to weaken under pressure, which is positive for safe-haven assets like gold and could lead to price increases.

If the US non-farm payrolls data exceeds expectations, the rate cut expectations will be suppressed, and gold prices may see a correction, with market risk sentiment moderately recovering.

Conclusion

The upcoming US non-farm payrolls report will have a significant impact on the Federal Reserve’s policy decisions and global market risk pricing. Regardless of the data’s performance, it will have profound implications for future economic trends and investment strategies.