Markets brace for jobs data amid rising government shutdown risks

We have two big events this week, a bundle of labor market data culminating in payrolls on Friday, and the talks ahead of the government shutdown on Oct 1. If talks fail, there will be no payrolls release. The probability of the government shutdown is quite high so we will have to make do with JOLTS tomorrow and then ADP private sector payrolls, both series with serious embedded shortcomings.

We thought we needed payrolls to suss out whether and by how much the Fed will be cutting rates in Q4. But if Q3 growth was 3.9% as the Atlanta Fed projects, this is red-hot and perhaps the Fed should not be cutting at all. It seems that employment at the lower end of the pay scale is indeed falling and the “low-firing, low-hiring environment” Powell mentioned is a real risk. Bloomberg reports the Sept jobs report we probably won’t get had been expected to show unemployment at 4.3%. but this “masks the reality of a growing number of people who feel stuck in jobs they don’t want or underemployed.”

Then there is the odd—very odd—dichotomy between capital spending rising though the roof while hiring/jobs are stagnant. JP Morgan wrote an essay saying we haven’t seen this is 60 years and it’s a “decoupling.” It reflects AI-driven productivity gains vs. “tariff drag and weak hiring.”

The CME Fed Watch tool shows a 91.4% probability of one cut by the Oct meeting and 68% for two cuts by the Dec meeting, from 75.4% a week ago, meaning some do see that cuts are not needed to fend off stagnation/recession.

We get pending home sales today, which never moves FX, but with harder housing data later in the week. We also get the Dallas Fed manufacturing and tomorrow, the Conference Board.

Here’s a weird thought: what if the government shutdown lasts 23 days, as it did in Trump I in 2018? We will be without official government data on employment, etc. and need to shift to private sector data. This could be a good thing because we can assume private providers ae more efficient, but private providers can also have bias and political agendas. Oh, dear. 

Forecast

The dollar doesn’t always follow yield one-to-one but quite often we can see it tracking pretty closely, which seems to be the case today. Yes, risk-off is on the rise and everyone notes the surge in general anxiety by just about everybody (and not just workers), but risk-off favors the dollar only if the safe-haven is not so wildly the source of risk and anxiety. Trump delivers higher risk and that often does favor the dollar, but seemingly not this time, at least for a few days.

Trump’s managerial incompetence is already well-known and we will see it again as the government shuts down. Normally the FX market pays little attention to shutdowns because it’s just politics, but may be less sanguine this time.

If the yields continue to slide, it could be due to the bond players expecting a slowdown and the Fed to cut rates. This is an adequate explanation for the dollar slide to persist. Our biggest clue—gold. 

---

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!