Nonfarm Payrolls preview: too much trouble somewhere else

The US Nonfarm Payrolls report will be out this Friday, as usual, at 12.30 GMT. The government jobs' report is expected to show that the US economy added 191,000 new jobs in August. The unemployment rate is expected to fall to 3.8% from the previous 3.95, while wages' growth is seen rising 0.2% MoM and 2.7% YoY, in line with the yearly average but below a motivating level.

In July, the economy added "just" 157K while the unemployment rate was of 3.9%. On average, the US economy added roughly 200K a month in the last year.

Signals ahead of the release are mixed, as weekly unemployment claims decreased in the last week of the month, falling to 203K, the lowest level since early December 1969, but the  ADP survey showed that private sector added just 163,000 new jobs in August, well below the previous 217K and the expected 190K, the lowest reading since October last year.

Despite sluggish wages' growth, the US economy is almost at full employment and inflation has reached the Fed so-longed 2.0% goal. Such positive figures have somehow diminished the relevance of the NFP report as a  market motor. Unless the outcome posts a big deviation from forecasted numbers, one way or the other, the market's reaction will be limited.

EUR/USD possible reaction to the release

Market players are now wondering when US rates will reach a neutral level, and therefore, the Fed will pause its tightening cycle, and won't be much concerned with fewer new jobs, as long as wages don't start improving at a slower pace.

For now, Fed's head, Powell, is determinate to keep the current gradual path of rate hikes, as it's keeping jobs' growth strong and inflation under control. "If the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate.”

The problem is inflation, the problem is yields and the possibility of an inverted yield curve that may lead to recession, not employment. Both first items seem to be under control but at risk of coming off it.

 In the meantime, debt drowns emerging markets and contagion fears spread, China and the US are involved and a continued escalating trade war, Canada and the US seem not to be anywhere near an agreement, and the clock keeps ticking toward the EU-UK divorce. Anyway, the NFP release is not what it used to be, but for sure will bring some entertainment by the end of the week.