The anticipation is over and the time has come for the highly anticipated Non-Farm Payrolls data for the month of August, which will be released later on today and could finally, and hopefully, definitively confirm whether the Federal Reserve would decisively embark on its rate cutting campaign.
In recent weeks, the focus and importance of CPI prints appear to be somewhat marginalized, as inflationary pressures have been generally speaking neutralized, albeit being marginally above the bank’s 2% target, hence markets have increasingly turned their attention on the labour market, searching for cracks.
Economists are anticipating that the US economy managed to add 75k new jobs in the month of August, with the labour market reporting its third sub-100k jobs report in a row, confirming the softness in employment conditions and the extension of the gradual cooldown of the US job creation mechanism.
The unemployment rate is expected to uptick by a tenth of a percent to the 4.3% level, slightly above historical averages, but in no way threatening to the rigidity of the US economy. As for wage increases, the average hourly earnings are seen easing to the 3.7% from last month’s 3.9% rise.
Given these expectations, money markets have moved to almost fully price in a scenario for a cut in September, with the probabilities of 25bps rate reduction crossing the 90% mark in recent days and the scenario for a larger, 50bps cut, being also somewhat entertained. Boosting the confidence of money markets and the odds higher, was the dovish commentary from two of the Fed’s most prominent voices and voters for the matter, namely Fed Governor Waller and Fed President Daly.
Looser policy conditions run the prospect of better performances from US equity markets, since companies that have been shackled by the Fed’s manufactured, high-interest rate environment for too long and were obligated to send out large sums of interest payments to their lenders, will now get a small breathing break.
Technical Analysis
DXY Chart – The greenback stay stuck at 1 month lows ahead of August’s NFP print
Resistance: 98.40 (R1), 99.70 (R2), 101.40 (R3)
Support: 97.10 (S1), 96.00 (S2), 94.80 (S3)