US seen adding more than 200,000 jobs for sixth month

Good morning,

• Across the board sell-off seen at the end of the week;

• Traders seen pricing in earlier Fed rate hike;

• US seen adding more than 200,000 jobs for sixth month;

• US inflation, manufacturing and consumer sentiment data also eyed.

It’s certainly been an interesting few days in the markets, with losses being witnessed across the board as the Dow wiped out the last of its yearly gains, bond yields rose as an earlier rate hike from the Federal Reserve started to be priced in and even Gold fell to a six week low. With such losses being seen it’s hardly surprising that we’ve finally seen a spike in volatility, with the VIX rising to a three and a half month high.

The only question now is whether what we’re seeing is the early stages of a broader correction or simply a brief sell-off prompted by a number of small factors feeding into people’s fear that a big correction must be round the corner. While US indices are on course for big losses, it’s worth noting that we’ve seen similar weeks on three occasions this year and each time, it’s actually been a fairly bullish signal as traders have found reason to buy the dips.

While traders may finally be pricing in a slightly earlier rate hike from the Federal Reserve, as seen by the rising yields across the board in recent days, I don’t expect there to be too big a revision to forecasts while the Fed continues to push out such dovish statements.

One thing that could prompt a change in sentiment is today’s jobs report. The jobs report is widely viewed as the most important economic release of the month and so we tend to see a little more caution from traders as we approach it anyway.

Today’s report could provide big insight into what the markets are expecting when it comes to rate hikes in the US. If investors do in fact believe that the Fed could be persuaded to raise rates earlier than planned, then a strong report today should prompt more of a negative reaction in the markets. If, on the other hand, we see a positive response to the jobs report, it would suggest that investors are not as concerned as some are suggesting.

In recent years, people have been obsessed by two or three pieces of the jobs report in particular, the unemployment rate, the participation rate and the non-farm payrolls figure. While these remain extremely important, with the latter seen above 200,000 for the sixth consecutive month, other aspects of the report are also being tracked very closely.

The Fed has been very clear in stating that it is looking at many different measurements of economic health and that it is concerned about the amount of slack in the economy. With that in mind, data such as hourly earnings, number of hours worked and personal income are increasingly important measures in determining Fed policy and should therefore not be overlooked.

The data doesn’t end with the jobs report today, we also have the Fed’s preferred measure of inflation, the core personal consumption expenditure price index, two pieces of manufacturing data and the UoM consumer sentiment reading. This should make for some volatile markets in what has already been a very volatile end to the week.

Ahead of the opening bell on Wall Street, the S&P is expected to open 13 points lower, the Dow 109 points lower and the Nasdaq 30 points lower.