A jam-packed week of big risk events will conclude with the monthly US employment report released on Friday. The non-farm payrolls data is always a big event in the market and there could be extra volatility due to thinner volumes in summer markets. That said, it is also worth noting that this is one of two payrolls reports before the next FOMC decision in mid-September.

The economy is still adding jobs, albeit in relatively modest numbers. Expectations are for a headline print of 106k non-farm payrolls in July, below the prior 147k. The range of analyst estimates is 0 -170k. Revisions to May and June will be watched with these trending negative in recent months. The three-month headline average is 150k, the six-month average is 130k, and the 12-month average is 151k. The unemployment rate is expected to tick one-tenth higher to 4.2% after the surprise dip in June. The rate of average hourly earnings is expected to rise to +0.3% m/m, while average workweek hours are seen unchanged at 34.2hrs.

Employment indicators and other pointers

A few factors may influence this report. The so-called ‘breakeven’ rate of job growth that maintains a reasonably stable unemployment rate has moved lower due to tighter immigration policy. Seasonal adjustments could reduce growth in payrolls in this report, while back-to-back dampening weather effects on the May and June data could see a bounce back in July.

Other employment metrics have been mixed with initial jobless claims data easing in the reference period, having ticked higher so implying a worsening labour market picture in the previous months. The NFIB’s indicator of small business hiring intentions points to a stronger headline payrolls figure of around +140k. But some caution is warranted as concerns around US data quality have surfaced with survey responses falling sharply, post-pandemic and due to budget cuts at the BLS. This week’s JOLTS numbers painted a familiar picture of the labour market, as hiring remains fairly low, but layoffs do as well.

Market reaction

With seasonal distortions a potential mover of the data, plus there being another NFP report before the September FOMC, markets may look through an inline set of figures, after any initial short-term move. The labour market has been seen by various rate setters as ‘in a good place’ although it has also been noted that both job growth and labour supply are slowing.

As of Wednesday 30^th, and prior to the FOMC meeting, money markets priced in around 46bps of easing for 2025, with roughly a 64% chance f a 25bps September rate cut. A data dependent, unchanged Fed that pushes back against a more dovish stance could support the dollar buying seen recently.

The 50-day SMA on the Dollar Index is now support, having been resistance for several months, and sits at 98.27. A long-term swing low from July 2023 is 99.57. Stocks are ripe for a correction, which might come on a really weak set of data. Please ensure you manage your risk during times of volatility.