The U.S. dollar (USD) is set up for a historic bust. This follows the final print of weaker-than-expected job gains in September, raising concerns over the demand for labor. The U.S. Bureau of Labor Statistics just tweeted that the October non-farm payrolls (NFP) report has been canceled. In turn, financial markets are now retracing and repricing their expectations for how much and where the Fed will take monetary policy next.
Even the timing of the November NFP data has been delayed. It will instead be released on December 16, just a week after the FOMC policy decision of December 10. Given this likely delay, the relevance of the September NFP data can’t be overstated. Further, next month’s October Job Openings and Labor Turnover Survey (JOLTS) report, scheduled for release on December 9, will be an important report for the Fed’s assessment of the labor market before their December meeting.
Many analysts see the hiring rate falling as a sign of labor demand weakness. This troubling trend may well present downside risks for the July NFP number. Recent hawkish signals from the FOMC have only made matters worse. The minutes of their October meeting showed a clear hawkish bias opposed to any rate cuts that may be hinted at this December.
Analysts are forecasting that the unemployment rate will remain flat at 4.3%. In addition, they are projecting the participation rate to remain at 62.3%. It was the first half of May when market sentiments changed completely. Traders cut the chance of a December rate cut by more than 15 percentage points to just 27%.
A majority of FOMC participants indicated that another cut in the federal funds rate would be warranted at the December meeting. Similarly, a host of other commenters advocated holding the line on the current target range for the remainder of the year. They think this is a better approach.
“Several participants assessed that a further lowering of the target range for the federal funds rate could well be appropriate in December… But many participants suggested that it would likely be appropriate to keep the target range unchanged for the rest of the year.” – FOMC October 28-29 meeting minutes
The September NFP data, set to be released at 1:30 PM London time (8:30 AM New York time), will serve as a vital benchmark for evaluating economic conditions. Any large job gains from this report may provide the impetus for the USD to resume its upward rise. If the numbers come in weak, we could see an immediate relief rally and renewed upward pressure on the short end of the Treasury yield curve.