NFP to back 25bps Fed rate cut in Nov?

The September non-farm payroll report is in sharp focus today, as it plays a critical role in shaping expectations for Fed’s upcoming monetary policy decisions. Currently, markets are pricing in 33% probability of a 50bps rate cut in November, with 67% chance of a 25bps cut. These odds have shifted notably from a week ago, when the probability of a 50bps cut stood at 50%, following comments from Fed Chair Jerome Powell, who indicated two more “normal-sized” cuts are likely by year-end.

It’s important to recall that Fed’s larger-than-usual 50bps rate cut in September was primarily a “catch-up) to their inaction in July. Many Fed officials believed that July would have been a more opportune time to initiate the easing cycle, had they had access to subsequent economic data. Therefore, barring any significant negative surprises in today’s NFP report, Fed is likely to adhere to its current plan outlined in the dot plot, implementing two additional 25 bps cuts in November and December respectively.

NFP is expected to show an increase of approximately 140k in September, with the unemployment rate remaining steady at 4.2%. Average hourly earnings are projected to slow to a month-over-month growth of 0.3%.

Recent related data offers mixed signals: ISM Manufacturing Employment Index declined sharply from 46.0 to 43.9, and ISM Services Employment Index also fell from 50.2 to 48.0. ADP employment report showed private sector job gain of 143k. Four-week moving average of initial jobless claims decreased slightly from 230,000 to 224,000.

Overall, these indicators suggest that while job growth remains robust, the likelihood of a significant upside surprise in today’s NFP release is low.

Risk sentiment and the market’s reaction to the NFP will be pivotal in shaping financial markets for the remainder of October, including currency movements.

Technically, NASDAQ is clearly losing momentum, as seen in 55 D MACD, after hitting 18327.33. Decisive break of 55 D EMA (now at 17587.55) will argue that rebound from 15708.53 has completed. In the bearish case, the corrective pattern from 18671.06 high could have already started the third leg, back towards 15708.53 and possibly below.