Asia wrap: It's all riding on NFP

Asia-Pacific equity markets mostly saw red on Wednesday, following the US benchmark’s pause after an eight-day winning streak. Investors are treading cautiously ahead of Chair Powell’s much-anticipated Jackson Hole speech on Friday and the following Non-Farm Payroll report. But frankly speaking, it's all about the next job reports.

What is the size of next month’s Fed rate cut? Well, it’s all riding on the August jobs report. Sure, that might sound like stating the obvious, but it’s a point worth drilling home. This month’s US “growth scare” had the Sahm rule stirring the pot, but recent macro developments—like a dip in jobless claims and a solid retail sales read—have nudged the odds back toward a 25bps cut at the September FOMC meeting. But don’t get too comfortable—with four consecutive mild CPI reports in the bag, it wouldn’t take much more than a bump in the unemployment rate to shove the market right back into 50bps territory.

Even if the unemployment rate holds steady, a sub-100k NFP headline could have the Fed dusting off the playbook for a 50bps cut, especially with Neel Kashkari, the dove-turned-hawk who’s now talking cuts.

The fact that someone as hawkish as Kashkari is even whispering about rate cuts in less than a month? That’s practically a neon sign flashing “25bps is a done deal.” But here’s the juicy part: will there be enough momentum for a supersized 50bps move? Right now, the answer seems to be “no,” but everything hinges on the labor market. If the September 6 payrolls report shows a sub-125k headline and another uptick in the unemployment rate, you can bet the market will quickly start pricing in a 50bps cut.

Now, let’s not forget the latest New York Fed survey. It’s the kind of data that’s easy to overlook, but it’s got a nugget or two worth noting. The share of respondents who’ve been job-hunting over the past four weeks has hit its highest level in a decade—over 28%. And the same poll shows Americans are more worried about losing their jobs than they’ve been since the summer of 2014, with the average expected likelihood of unemployment at 4.4%.

If you’re scratching your head wondering what this survey even is, you’re not alone. It’s conducted every four months, polling about 1,000 people on their job and employment expectations. This isn’t top-tier data, folks—it’s barely second-tier. Most market participants probably haven’t even heard of it. But hey, if you’re in the mood for a little confirmation bias to back up your labor market downturn thesis, this will do just fine.

Get ready for an action-packed day focused squarely on the US jobs market! Today, the Bureau of Labor Statistics (BLS) is set to release the preliminary annual benchmark revisions for non-farm payrolls data through March 2024. This isn’t just any data drop—it’s the one that could shake up the markets. Back in June, the BLS hinted at a probable downward revision when they released the Quarterly Census of Employment and Wages. Now, we’re about to see if those early warning signs come to fruition.

Here’s the deal: every monthly NFP print relies partly on the birth-death model, which is basically the BLS’s best guess at how many new COMPANIES are born and how many bite the dust. The catch? It’s only when the BLS gets more accurate tax data down the line that they can provide a clearer picture.

Today, we get the initial revision with the final numbers dropping in February 2025. History tells us that when the economy starts to slow and interest rates are high, the number of small and medium-sized businesses folding is often underestimated. Conversely, during economic upturns, the birth rate of new companies tends to be underestimated. Just look at the recent cycle: 2019 saw a downward revision of 501k when rates were high, and 2022 got an upward bump of 462k as rates were still relatively low but on the rise.

There’s chatter that today’s revision could be a doozy—anywhere from -600k to -1 million. But before you hit the panic button, remember this: the Fed looks at the labor market’s inflation risks from more than just the NFP print. The unemployment rate, which comes from a completely different report, is key. Average hourly earnings, another crucial inflation gauge, won’t change due to the NFP revision. Plus, the Fed has a whole suite of labor market data and wage indicators at its disposal