Jobs wait
The wait is almost over for US jobs data that will be key to the Federal Reserve’s decision to cut interest rates. Ahead of Friday’s release, the S&P 500 Index and two-year Treasury yields — among the most sensitive to policy expectations — fell in tandem for a third straight day. The nonfarm payrolls figures are expected to show hiring and wage growth picked up in August. They will come after a private report from ADP on Thursday showed the US added the fewest jobs since 2021. While the private figures have been a poor prognosticator of payrolls in recent years, the correlation between the two data sets has been improving.
Bold bets
The payrolls data will help determine whether the Fed can lower borrowing costs by a quarter-point this month — or deliver a larger, half-point reduction, as the likes of Citigroup and JPMorgan predict. Ahead of the report, traders are fully pricing a smaller cut but continue to see some chance of a bigger move. If market-implied expectations shift decisively toward one outcome or the other, wagers on a 25-basis-point move will “make a little or lose a lot — and the opposite if you’re betting on 50 basis points,” according to Matthew Raskin, US head of rates research at Deutsche Bank. Looking ahead to the end of next year, billionaire John Paulson said his “best guesstimate” is for borrowing costs to be around “3%, perhaps 2.5%.”
AI divergence
The wedge that artificial intelligence has driven across the tech sector was clear in Broadcom’s results, which showed a lackluster revenue forecast in a sign that slower demand for non-AI products is weighing on growth. Broadcom is a chip supplier for Apple and other big tech companies, and has benefited from a surge in artificial intelligence spending. Yet its other divisions aren’t as connected to this bonanza. Prior to the release, analysts were looking to Broadcom’s earnings to reassure investors that AI demand remains strong. Its shares fell in extended trading following the announcement.
China bonds
Some Chinese government bonds that the nation’s central bank bought last week are now being sold in the secondary market, traders said — a possible sign that authorities are once again intervening to curb the debt rally. The 10-year special sovereign notes, which the People’s Bank of China purchased from primary dealers last week, were offered by financial institutions in batches. Despite the PBOC’s constant push-back on a blistering bond rally, traders are wading back into the market on bets Beijing has to ease monetary policy to rejuvenate the sluggish economy. This week, the benchmark bond yield sank to a record low, raising the need for intervention to put a floor under falling yields.
OPEC+ pause
OPEC+ postponed its oil supply hike by two months, but the move wasn’t enough to roll back steep losses in crude prices. Key coalition members won’t now increase production by 180,000 barrels a day in October and November, according to a statement on OPEC’s website. Yet their longer-term plan to revive 2.2 million barrels a day of idle supplies gradually over the course of a year remained in place, with the completion date pushed back two months to December 2025. OPEC’s rethink came after downbeat economic data from China and the US — the biggest consumers — sent crude prices below $73 a barrel earlier this week, reaching the lowest since late 2023.
And finally, here’s what Anya is interested in today
A shift among traders to bet on the weakening of the US dollar and a spike in volatility are paving the way for an outsized reaction when the jobs data are released on Friday.
Overnight volatility in the US currency has shot up to the highest since March of last year when the US banking crisis was sending shock waves through the financial markets. Traders are now bracing for a print that will help gauge if the Fed is to kickstart its easing cycle with a jumbo interest-rate cut. Short positioning in the dollar is poised to exacerbate any potential rally, should the data surprise to the upside.
For Helen Given, a foreign-exchange trader at Monex Inc., a 1% move in the Bloomberg Dollar Spot Index in either direction is a possibility Friday. A better-than-expected reading and a positive dollar reaction are more probable in her books. She expects the Fed to remain cautious and not to spook the market with a big cut.
Brad Bechtel at Jefferies also sees the “risk-reward” swinging in favor of a dollar rally. While bets will remain net negative on the greenback, the market “leaning very short” creates a risk for a dollar rally in case of a beat in payrolls, he said.
