August’s employment data is released at 8:30. Interest rate swap contracts show roughly a 35% chance that the Fed will lower rated by 50 bps when it meets September 17-18. A quarter point reduction is still believed to be the most probable outcome.
That split has boosted the scope for big gains and losses in the markets, which last month helped send the equity markets into a tailspin when the employment figures missed expectations. The Treasury market is anticipating a poor report and if the data is stronger than forecasts, a significant selloff and another recalibration of monetary policy expectations could occur.
The possible rise in volatility is the direct result of the Federal Reserve stating that monetary policy will primarily be based upon employment.
As noted last week, the dominance of this data point is perhaps misguided given the massive revisions that occurred in the 12-month prior job growth where job creation was reduced by over 800,000 jobs or the greatest revision in over two decades.
Some are suggesting that either the data gathering process, or the initial analysis of the data is flawed, thus inferring that decisions are made in a vacuum where the variables to support the conclusions are unreliable.
Analysts are expecting a 165k and 140k increase non-farm and private sector payrolls, respectively, a 4.2% unemployment rate, a 0.3% increase in average hourly earnings, a 34.3 hourly work week and a 62.7% labor participation rate.
Last night the foreign markets were down. London was down 0.30%, Paris down 0.28% and Frankfurt down 0.63%. China was down 0.81%, Japan down 0.72% and Hang Seng down 0.07%.
Dow and NASDAQ futured are down 0.3% and 1.3%, respectively but this could change significantly if the jobs data vastly differs from the consensus view. The 10-year is up 9/32 to yield 3.70%.
