Market futures currently put the probability of a 50 basis point rate cut at 40%. A disappointing jobs report could double that probability and push yields lower. On the other hand, a report that meets or exceeds expectations could reduce the probability of a 50 basis point cut. A 25 basis point cut seems certain regardless of the outcome of the report.
Stock markets are weighing the potential impact of a weak report that could raise the possibility of a significant rate cut but also raise recession concerns. The direction of market sentiment remains uncertain.
The Japanese yen is another valuable focus. If the employment report falls short of expectations, the yen could break a valuable resistance point against the dollar. On the other hand, a strong report could nullify the yen’s 2% gain this week.
Oil prices are similarly under pressure and are on track for their worst week in more than a year despite positive U.S. inventory news. A strong jobs report could keep Brent crude from falling below $70 a barrel.
Market action in Asia was limited today, with Taiwan up 1% and bonds holding onto their weekly gains. The dollar is recovering from recent losses. NasdaqEuropean markets are expected to open quietly, with EUROSTOXX 50 futures up 0.1% and FTSE futures down 0.1%.
Investors will also be watching for speeches from Fed officials Governor Christopher Waller and New York Fed President John Williams to learn more about the U.S. interest rate trajectory.
In addition to employment data, markets will also consider Germany’s July industrial production, the country’s trade data and the Eurozone’s revised GDP data for the second quarter as factors affecting today’s trading environment.
