US Jobs Report: What to expect?

What: US Jobs Report 

When: 13:30 GMT (14:30 CET)

Expectation: NFP Aug 165k vs 114k (July) and unemployment Aug 4.2%vs 4.3% (July)

How will market likely react? If tomorrow's Nonfarm Payrolls (NFP) report comes out stronger than expected, with job growth exceeding 165k and the unemployment rate falling to or below consensus at 4.2%, it is likely to be seen as a negative for those hoping for aggressive rate cuts. The unemployment rate is a key focus because the recent uptick is what triggered the “Sahm Rule”, defined as when the unemployment rate increases 0.5%-point from the previous 12-month low, which is a sign that the economy is moving towards a recession. The market is currently leaning towards expectations of a weakening labour market, which means that a better-than-expected jobs report could reduce the probability of large rate cuts this year.

A disappointing jobs report, with growth coming significantly below 165k or the unemployment rate remaining elevated, would likely prompt the market to price in a 50bps rate cut in September with additional significant cuts expected before the year’s end. A weakening labour market would bolster the case for deeper rate cuts, potentially triggering a bond rally. At the same time, equity markets could extend their selloff amid growing growth concerns, US dollar may come under further pressure amid heightened expectations of Fed rate cuts while gold could be supported as investors turn to safe-haven assets in response to heightened economic uncertainty.

The below shows our views ahead of the Nonfarm Payroll report.