U.S. Jobs Data Preview: Strong Data May Spook Stocks, Boost the Dollar
U.S. Jobs Data Preview: Strong Data May Spook Stocks, Boost the Dollar
By:Ilya Spivak
Would markets cheer stronger growth in U.S. employment? Not so fast.
- Until September, markets thought the Fed waited too long to cut interest rates.
- Meanwhile, the U.S. economy has outperformed, stoking reflation expectations.
- Stocks may decline if strong labor market data trims scope for interest rate cuts in 2025.
When the Federal Reserve began to signal in early July that the time had come to lower interest rates, the markets feared the central bank was compelled to act because it spied something worrying about economic trends. By then, they’d seen three months of deteriorating U.S. economic data while officials seemingly dithered, waiting for inflation to cool further.
That has stoked dovish speculation. The policy path implied in Fed Funds futures moved to add some 40 basis points (bps) more in easing by the end of 2025 from the time when Fed Chair Jerome Powell told Congress that upside risks to unemployment and inflation have come into balance—implying cuts are imminent—to the first decrease 10 weeks later.
The U.S. economy looks better than the markets feared
The U.S. economy seems to have bucked such pessimism. Leading purchasing managers’ index (PMI) data from S&P Global showed the pace of growth in economic activity had sustained momentum for a fifth consecutive month in September after jumping to a one-year high in May.
Analog PMI data from the Institute of Supply Management (ISM) seems to be tilting in a similarly benign direction. Meanwhile, a closely watched economic growth tracker from the Atlanta Federal Reserve expects the economy will grow at a healthy annualized clip of 2.5% in the third quarter, after expanding at a rate of 3% in the second.
That makes for a curious backdrop as all eyes turn to September’s edition of official employment statistics. The economy is seen adding 145,000 jobs to nonfarm payrolls, a barely noticeable uptick from August’s 142,000. The unemployment rate is expected to remain unchanged for a third month at 4.2% straight.
Stocks may not like U.S. jobs data that beats expectations
Analytics from Citigroup show that for the first time in five months, U.S. economic data outcomes are narrowly tending to outperform relative to median forecasts. Government figures tracking job openings and a private sector estimate of hiring from HR management giant Automatic Data Processing(ADP) already topped projections this week.
If the Bureau of Labor Statistics (BLS) unveils labor market data that similarly surprises to the upside, traders may lean into expectations that Fed rate cuts atop a decently growing economy will bring reflation and reduce scope for rate cuts next year. That may not sit well with stocks as a corporate refinancing wave looms. The U.S. dollar stands to gain.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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