Investors are keenly focused on U.S. jobs data this week, particularly the nonfarm payrolls report for July, to assess the likelihood of further interest rate hikes by the Federal Reserve. Recent jobs data have shown weakness, and any additional signs of a slowing labor market could lead to a further reduction in rate-hike expectations. For instance, prior to the Fed's recent meeting, a September rate increase was fully priced in, but now money markets, according to LSEG data, indicate only a 68% chance of such a move. ING currency analyst Francesco Pesole noted that any disappointment in U.S. data could trigger a larger dovish repricing, especially if oil prices decline. There are no sales of notes or bonds scheduled for the week.
The July jobs report, due on Friday, is the most crucial piece of economic data before the Fed's September 16 meeting. Kalshi, a prediction market, currently prices a September rate hike at 52%, making it the most likely outcome, ahead of a hold at 45%. The consensus forecast for July nonfarm payrolls (NFP) is approximately +90,000 to +110,000. If the NFP comes in above +150,000, a September hike becomes almost certain, with Kalshi odds potentially exceeding 70%. Conversely, a report below +75,000 would significantly bolster the case for a hold.
Ahead of Friday's main report, investors will look to the JOLTS job openings data on Tuesday, ADP private payrolls figures for July on Wednesday, and jobless claims figures on Thursday for additional clues on the health of the labor market. The unemployment rate is expected to either remain at 4.2% or tick up to 4.3%. A rise to 4.4% or higher would support the "hold" thesis, while a decline below 4.2% would strengthen the "hike" argument. Average hourly earnings are anticipated to show a third consecutive monthly gain of +0.3%.
Federal Reserve Chairman Kevin Warsh's recent silence on forward guidance has made economic data releases even more critical for market direction. The central bank left interest rates unchanged at its last meeting, and the substantial increase in Treasury yields across maturities is a key factor that may deter any policy moves to increase the supply of notes or bonds. The bond market has seen a significant shift since late February, influenced by factors like rising oil prices and a renewed focus on inflation persistence by some Fed officials.
