In our last employment report preview, we discussed the drop in domestic manufacturing and the impact that would have on the markets. On Tuesday, ISM reported the manufacturing index fell to 47.8%, the lowest since 2009 when the great recession was ending.
The selloff in markets the last two days has been attributed partly to this low manufacturing number as it implies third quarter growth will also be lower. It also dispels the notion that the US was isolated from the global slowdown many other countries have been seeing.
Following the poor data, the White House again pressured the Federal Reserve with comments of reducing rates further. The Federal Reserve has previously stated their intention is to monitor global economies and react accordingly when necessary. Looking at the CME Fedwatch tool, a 76% likelihood of an October rate cut is evident, signaling the market feels it is becoming necessary to cut rates again.
The looming employment report will either stoke this fire or cause trepidation. The consensus forecast for tomorrow’s report stands at 145,000 new jobs, falling into the overall downtrend apparent in the past 5 months. The ADP report from Wednesday came in lower-than-expected with 135,000 new jobs reported compared to an expected 152,000.
Friday’s number may have an exceptionally volatile reaction in the markets considering the recent selloff and rebalancing of expectations going forward. If the report comes in weaker than expected, one can expect to see the odds for an October rate cut increase as the Fed tries to soften the landing for the looming slowdown.
Should this report beat the expectations of 145,000, we may see a further selling in the markets as good news is no longer good news. A strong report might be just enough good news to the Fed that a rate cut is not necessary this month, something the market also does not want to see. This scenario is not out of the question given the relative strength of the labor market compared to other areas of the economy, especially when considering two of the prior three employment reports have been at or above the consensus estimate.
Either way, tomorrow’s report has the potential to significantly move all markets. Traders should have a plan in place to protect their accounts in all scenarios. For up-to-date information regarding futures contract expirations, news announcements & more, visit the NinjaTrader Trade Desk Calendar.