Markets brace for August non-farm payrolls as US and Canadian jobs data approach
Key Takeaways
- •Two-year US Treasury yields rose 2 bps to 4.35%, indicating pre-positioning ahead of the jobs report is concentrated in rate expectations rather than currencies.
- •Fed Governor Christopher Waller said he would discount the jobs report in his thinking unless it delivers a major surprise, reflecting officials' emphasis on the broader labor data trajectory.
- •A headline payrolls gain around +10K or lower could shift markets toward pricing a Fed hold, with August data historically prone to seasonal distortions and large revisions.
- •The US labor force participation rate of 61.4% remains a structural concern, as falling participation can mask weakening employment even when unemployment declines.
- •The Bank of Canada held rates this week, but a hike is fully priced by year end, and July's +75.1K job gain gives today's Canadian report room to miss without changing the economic outlook.
The final countdown to jobs Friday is underway, with both the US and Canadian employment reports due at the bottom of the hour.
USD/JPY remains in focus, trading more than 100 pips above yesterday's low after further turbulence in Asia. Macro traders would likely avoid the pair in the aftermath of the report.
Elsewhere, the landscape is fairly flat. The euro is down 2 pips on the day at 1.1622, and much of the currency market looks similar. Fixed income tells a different story, with 2-year yields up 2 bps to 4.35% and trading at the highs of the day — a move that highlights how rate expectations, rather than currencies, are where the pre-positioning is showing up ahead of the data.
Federal Reserve Governor Christopher Waller said yesterday that he would dismiss the jobs report in his thinking — barring a big surprise — and that stance will loom large. It underscores a broader theme this cycle: Fed officials have increasingly emphasized the broader trajectory of labor data over any single print, even as markets remain highly sensitive to each release. Still, this is non-farm payrolls, the most closely watched monthly US economic indicator, and the wage component of the report carries inflationary indications that the Fed watches closely.
A non-farm payrolls preview dives into the numbers and the seasonal bias in the August data — August payrolls have historically been prone to distortions from seasonal hiring patterns, which is why initial prints often come with outsized revisions. The market could swing toward the Fed holding if the headline comes in around +10K or less, though revisions add many moving parts. That could create political dynamics, as the following meeting would fall close to the mid-terms.
Meanwhile, the 61.4% labor force participation rate remains a problem in the US economy and will draw more attention if it deteriorates further. That is a longer-term issue, however, and not a market mover. It is one reason headline job gains can overstate underlying labor-market strength: if participation falls, unemployment can decline even as fewer people are working.
As for Canada, the Bank of Canada held rates this week, but a hike is fully priced in — and a tad more — by year end. Recent employment numbers have been good, and the latest blow-up in USMCA — the trade pact governing most North American commerce — should not hit the data until September. There may be some over-achievement in recent Canadian data, but the July reading of +75.1K provides huge latitude for a miss in today's report without forcing an economic re-think. It could still weigh on the loonie, though, given how tightly the currency tracks shifts in Bank of Canada pricing.
