Anticipation Builds for U.S. Jobs Report: Implications for Fed Policy and Market Outlook

European Midday Briefing : U.S. Jobs Report Awaited for Fed Rate Cut Clues

European indexes were lower again on Friday as investors remained skittish after recent U.S. data has given mixed signals on the economy. The U.S. jobs report will show whether a soft landing is on track, or if a potential recession is in sight, and nerves will be tested by memories of last month's report that triggered market turbulence, Interactive Investor said. A decent jobs report might lead Federal Reserve officials to kick off a likely sequence of rate cuts with a quarter-point reduction. A larger cut looms if hiring is soft or the unemployment rate jumps-as in July. Stocks to Watch Entain's appointment of a new chief executive officer should remove pressure on the shares, Berenberg said. Having started in early September, the new CEO should bring stability to the U.K. betting-and-gambling group. Roche is fast-tracking its promising obesity pipeline, yet upcoming competitor data could limit the potential of its market share, Berenberg said. Berenberg values the Swiss pharma giant's obesity pipeline at 10 billion Swiss francs but also sees downside risk to the stock if next week's European diabetes meeting shows any sign of weakness in Roche's obesity data. U.S. Markets: Stock futures were lower ahead of the jobs report. Economists polled by The Wall Street Journal forecast that 161,000 jobs were created last month, more than in July, and that the unemployment rate edged lower. "If Friday's labor report shows weak payroll growth or a rise in the unemployment rate, markets may fully price in a 50-basis point cut," UBS said. Forex: The DXY dollar index hit a one-week low ahead of the U.S. nonfarm payrolls report, which is considered key for determining the scope of expected interest-rate cuts by the Federal Reserve. The report could be decisive for whether the Fed delivers a 50 basis points rate cut at the September 18 meeting, Danske Bank said. The dollar could rise if the data show a recovery in payrolls growth, an unchanged unemployment rate and stable earnings growth. "However, the dollar may face downward pressure in the coming month as the Fed initiates its cutting cycle, and risk sentiment could remain positive." Commerzbank said the dollar could come under further pressure if the data are significantly weaker, potentially reigniting fears of a U.S recession and prompt the market to price in a higher probability of a 50 basis-points interest-rate cut at the Federal Reserve's September 18 meeting. A much stronger report would allay these concerns, increase the likelihood of a 25 basis-point move and boost the dollar. If the data meet expectations, it will still clear the way for the Fed to start cutting rates this month but this is priced in, so the dollar could unwind some of this week's falls, Commerzbank said. ING said Emmanuel Macron's appointment of Michel Barnier as prime minister is somewhat positive for the euro ahead of an intense EU budget season. "The fact that a candidate was finally picked is a signal that the more fringe parties in the French Parliament are opening up to dialogue." However, there needs to be more clarity on budget negotiations and each party's priorities to determine whether the euro will rise, ING said. Bonds: Markets look to trade for a weak payrolls print, while good data are expected to make Treasury yields bounce, ING said. "Markets are actually trading as if we are going to get a sub-100,000 payrolls outcome. If we don't get that type of validation for material slowdown, yields will be under pressure to rise for a bit." SEB Research said U.S. data are even more important for eurozone government bond yields than the European Central Bank's decisions during the autumn. "If recession worries surface in the U.S., the impact will spill over to ECB expectations and to Bund yields." SEB Research's base case is that the 10-year German Bund yield will trade mostly in the 2.10%-2.30% range during the autumn, versus 2.20% currently, although temporary dips below this range are possible. For the ECB's meeting next week, SEB Research expects a 25 basis point rate cut, in line with market pricing. The appointment of Michel Barnier as prime minister in France is unlikely to lift French government bonds in the long term, Societe Generale Research said. The new PM will now take on the difficult tasks of forming the new government and dealing with the tricky public finances, but "given the challenges ahead, we do not expect the news to bring long-term strength to OATs." SocGen expects the 10-year OAT-Bund yield spread to remain in the 60-75 basis point range. "The autumn is likely to be the next volatile period for spreads, around the budgetary plan discussions in Europe and in the run-up to the U.S. elections." The 10-year OAT-Bund yield spread has narrowed less than 1 basis point, and Citi said the "key reason behind the muted optimism might be that the new government will need support from the far-right RN [National Rally] alongside centrist parties to obtain confidence of the Assembly." This might mean risks to government stability and reflection of some far-right priorities in new government policies. Energy: Oil prices edged higher but remained on track for weekly losses following OPEC+'s decision to delay its planned output hikes by two months after crude futures dropped to their lowest levels this year. The group of oil producing countries agreed to extend voluntary production cuts to the end of November, easing worries over a market surplus, but failed to address broader concerns over global demand. "Markets appear to be underwhelmed with the move. The issue is that the oil balance is in surplus over 2025, suggesting that prices are likely to remain under pressure without OPEC+ taking longer term action," ING said. ANZ Research said OPEC+'s decision didn't come as a surprise given the amount of pressure that oil prices have faced in recent months. While the move lowers risks of seeing the market moving into a surplus in the fourth quarter, it is unlikely to fully ease concerns over weak demand next year, according to ANZ. It could also signal that the cartel and its allies are still struggling to comply with the previously agreed production cuts. Pepperstone said the nonfarm payrolls report could be the key to gold's next significant move--if job growth comes in under 100,000 and the unemployment rate holds at 4.3%, the market will increasingly lean toward a 50 basis point interest-rate cut, a boon for the metal. This scenario would spark fears of economic deterioration, pushing gold even higher, while stronger payrolls data would reinforce expectations for a smaller 25 basis point cut, keeping gold within its current range. EMEA HEADLINES German Recession Fears Mount as Industry Slump Endures The long slide in German factory output continued in July, increasing the risk that the eurozone's largest economy is falling into a second straight quarter of contraction. German factories have been faltering since 2018, but suffered a fresh blow when energy costs surged in the wake of Russia's invasion of Ukraine in early 2022. Despite some hopeful signs at the start of this year, they have yet to embark on a sustained recovery. German Trade Surplus Narrows as Imports Grow Germany's trade balance narrowed in July as import growth outpaced exports. Trade balance, a measure of the difference between imports and exports, showed a surplus of 16.8 billion euros ($18.67 billion) in July. This was less than the 20.4 billion-euro surplus in June and below economists' expectations of 20.6 billion euros, according to forecasts compiled by The Wall Street Journal. EU Aviation Safety Agency Calls for A350 Inspections After Cathay Pacific Engine Trouble The European Union's aviation safety agency called for inspections to be carried out on Airbus A350 model planes after Hong Kong-based airline Cathay Pacific discovered earlier this week that engine components on some of its planes required replacement. The bloc's aviation safety agency said in an emergency airworthiness directive on Thursday that it is requiring a "one-off inspection of flexible fuel hose connections inside the engines to check for damage" on Airbus A350-1000 jets powered by Rolls-Royce Trent XWB-97 engines. Court Blocks Sale of Raiffeisen's Russia Unit Raiffeisen Bank International said a Russian court blocked it from selling shares in its business in the country, dealing a blow to the Austrian bank's plan to offload a controlling stake in the unit and sending its stock down. The lender, one of the few Western banks that still has a sizable operation in Russia, said a court issued a preliminary injunction on Thursday that imposes a transfer ban on its fully-owned business in the country, AO Raiffeisenbank. Raiffeisen said it would attempt to reverse the court decision by all legal means. Markets are skittish. Tiny shifts in the economy are magnified into fear of recession or big relief rallies as sentiment swings wildly. Add in the deflation of some of the artificial-intelligence hype and recent stock moves frequently don't seem to make much sense. Yet, under the surface two themes are emerging. We have entered a new market paradigm with a focus on economic growth, rather than inflation. Connected with that, previously unloved stocks have beaten the market's stars, helped by looming Federal Reserve rate cuts. Jobs Report Will Sway Fed's Decision on Size of Rate Cut The August employment report due for release Friday stands to play a larger-than-normal role in determining the size of a widely expected interest-rate cut later this month.

North American Morning Briefing : Crucial Jobs Report Awaited

Stock futures were in the red on Friday and Treasury yields dipped ahead of the eagerly awaited jobs report and the last Federal Reserve speaker before the central bank's interest rate decision in mid-September. The Labor Department at 8.30am will publish August jobs data, which is expected to show a rebound in payrolls growth and the unemployment rate easing a tenth of a point to 4.2%. There also will be a speech from Christopher Waller at 11am, who will have the last word on interest rates before central bank officials go dark ahead of the Sept. 18 rate decision. Investors are going into the data with a pessimistic view, particularly after ADP data on Thursday showed the weakest private payrolls growth since 2021, and the ISM services report's employment gauge fell more than anticipated. Premarket Movers Broadcom's revenue guidance fell short of analysts' forecasts, adding to jitters about the trajectory of AI demand. Shares fell 9%. Nvidia fell a further 2%, putting it on track to extend recent losses, which began when its blockbuster quarterly results failed to match heady expectations. Smith & Wesson shares fell more than 7%. It reported a quarterly loss late Thursday, citing slow firearm demand. UiPath raised its full-year revenue outlook and approved a buyback program, sending shares up almost 10%. Postmarket Movers Helen of Troy's board authorized $500 million in share repurchases. Shares rose 5.7%. Quanex Building Products posted higher-than-expected third-quarter results and noted an expected rebound for its business following interest rate cuts. Shares rose 12%. Watch For: Employment Report for August; Canada Labour Force Survey for August -Trump Proposal to Cut Tax Rate for U.S. Manufacturers Spurs Flurry of Questions -Harris's Huge Cash Edge Means Less Need for Her to Headline Fundraisers -More Debts or Not, Beijing Faces a Thorny Question -The Putin Propaganda Chief Who the U.S. Says Is Now After American Minds The DXY dollar index hit a one-week low ahead of the nonfarm payrolls report, which is considered key for determining the scope of expected interest-rate cuts by the Federal Reserve. The report could be decisive for whether the Fed delivers a 50 basis points rate cut at the September 18 meeting, Danske Bank said. The dollar could rise if the data show a recovery in payrolls growth, an unchanged unemployment rate and stable earnings growth. "However, the dollar may face downward pressure in the coming month as the Fed initiates its cutting cycle, and risk sentiment could remain positive." Commerzbank said the dollar could come under further pressure if the data are significantly weaker, potentially reigniting fears of a U.S recession and prompt the market to price in a higher probability of a 50 basis-points interest-rate cut at the Federal Reserve's September 18 meeting. A much stronger report would allay these concerns, increase the likelihood of a 25 basis-point move and boost the dollar. If the data meet expectations, it will still clear the way for the Fed to start cutting rates this month but this is priced in, so the dollar could unwind some of this week's falls, Commerzbank said. ING said Emmanuel Macron's appointment of Michel Barnier as prime minister is somewhat positive for the euro ahead of an intense EU budget season. "The fact that a candidate was finally picked is a signal that the more fringe parties in the French Parliament are opening up to dialogue." However, there needs to be more clarity on budget negotiations and each party's priorities to determine whether the euro will rise, ING said. Bonds: Markets look to trade for a weak payrolls print, while good data are expected to make Treasury yields bounce, ING said. "Markets are actually trading as if we are going to get a sub-100,000 payrolls outcome. If we don't get that type of validation for material slowdown, yields will be under pressure to rise for a bit." SEB Research said U.S. data are even more important for eurozone government bond yields than the European Central Bank's decisions during the autumn. "If recession worries surface in the U.S., the impact will spill over to ECB expectations and to Bund yields." SEB Research's base case is that the 10-year German Bund yield will trade mostly in the 2.10%-2.30% range during the autumn, versus 2.20% currently, although temporary dips below this range are possible. For the ECB's meeting next week, SEB Research expects a 25 basis point rate cut, in line with market pricing. The appointment of Michel Barnier as prime minister in France is unlikely to lift French government bonds in the long term, Societe Generale Research said. The new PM will now take on the difficult tasks of forming the new government and dealing with the tricky public finances, but "given the challenges ahead, we do not expect the news to bring long-term strength to OATs." SocGen expects the 10-year OAT-Bund yield spread to remain in the 60-75 basis point range. "The autumn is likely to be the next volatile period for spreads, around the budgetary plan discussions in Europe and in the run-up to the U.S. elections." The 10-year OAT-Bund yield spread has narrowed less than 1 basis point, and Citi said the "key reason behind the muted optimism might be that the new government will need support from the far-right RN [National Rally] alongside centrist parties to obtain confidence of the Assembly." This might mean risks to government stability and reflection of some far-right priorities in new government policies. Energy: Oil prices edged higher but remained on track for weekly losses following OPEC+'s decision to delay its planned output hikes by two months after crude futures dropped to their lowest levels this year. The group of oil producing countries agreed to extend voluntary production cuts to the end of November, easing worries over a market surplus, but failed to address broader concerns over global demand. "Markets appear to be underwhelmed with the move. The issue is that the oil balance is in surplus over 2025, suggesting that prices are likely to remain under pressure without OPEC+ taking longer term action," ING said. ANZ Research said OPEC+'s decision didn't come as a surprise given the amount of pressure that oil prices have faced in recent months. While the move lowers risks of seeing the market moving into a surplus in the fourth quarter, it is unlikely to fully ease concerns over weak demand next year, according to ANZ. It could also signal that the cartel and its allies are still struggling to comply with the previously agreed production cuts. Pepperstone said the nonfarm payrolls report could be the key to gold's next significant move--if job growth comes in under 100,000 and the unemployment rate holds at 4.3%, the market will increasingly lean toward a 50 basis point interest-rate cut, a boon for the metal. This scenario would spark fears of economic deterioration, pushing gold even higher, while stronger payrolls data would reinforce expectations for a smaller 25 basis point cut, keeping gold within its current range. TODAY'S TOP HEADLINES 7-Eleven Parent Rejects $39 Billion Buyout Offer by Circle K Owner TOKYO-The Japanese company that operates 7-Eleven convenience stores worldwide has rejected a $39 billion takeover offer by the Canadian owner of Circle K stores, saying the bid is too low. Tokyo-based Seven & i Holdings said Friday the offer by Canada's Alimentation Couche-Tard significantly underestimated the value of the company and its potential. Seven & i also said the proposal didn't sufficiently address regulatory issues including a possible antitrust challenge in the U.S., where both companies have large store networks. Google Might Have Broken Antitrust Laws, U.K. Regulator Says U.K. regulators said Google might have breached competition laws by using its dominant market position to favor its own ad services. "The provisional findings relate to how Google 'self-preferences' its own ad exchange-harming competition and, as a result, advertisers and publishers," the Competitions and Markets Authority said in a statement Friday. One Bargain You Can't Find at Costco Is Its Stock-Does That Matter? Investors love Costco so much they'll pay more for it than Nvidia. But even famed investor Charlie Munger might balk at his favorite retailer's earnings multiple today. In an interview last year, Warren Buffett's late right-hand man observed that the "trouble with Costco" is that the stock trades at 40 times earnings. "Except for that, it's a perfect damn company, and it has a marvelous future," he said. Apple's iPhone Event Is Near. The Stock Could Use a Boost. It's that special time of year again for Apple fans-the iPhone launch event is here. Dubbed "It's Glowtime," the event will stream on Sept. 9 at 1 p.m. Eastern time on both the company's website and YouTube. Fed's Goolsbee says trending economic data justifies multiple rate cuts, starting soon The longer-run trend of labor-market and inflation data justify the Federal Reserve easing interest-rate policy soon, and then steadily over the next year, Chicago Fed President Austan Goolsbee said Thursday, in an exclusive interview with MarketWatch. "The long arc shows inflation is coming down very significantly, and the unemployment rate is rising faster" than Fed officials had expected in June, Goolsbee said. Eurozone Economy Weaker Than Previously Estimated as ECB Prepares to Meet The eurozone economy grew less rapidly in the three months through June than previously estimated, making it more difficult for the European Central Bank to secure a soft landing as it seeks to tame inflation.

Jobs Report Today

Investors will take stock of the labor market this morning. Economists expect 161,000 jobs were added in August and the unemployment rate fell to 4.2%. Markets have tumbled this week, hurt by worries about the health of the economy. Investors say a positive jobs report could help the market regain its footing. The report stands to play a larger-than-normal role in determining the size of a widely expected interest-rate cut by the Federal Reserve later this month. For the last two years, the inflation reports-not the jobs reports-have been the big focus. But this week, that changes. The jobs report will likely decide the magnitude of the rate cut. Read on for this news and more. Top News Jobs Report Will Sway Fed's Decision on Size of Rate Cut A decent August jobs report might lead Fed officials to kick off a likely sequence of rate cuts with a quarter-point reduction. A larger cut looms if hiring is soft or the unemployment rate jumps-as in July. Friday also happens to be the last day Fed officials can communicate publicly before a self-imposed premeeting quiet period begins. New York Fed President John Williams and Fed governor Christopher Waller are set to speak Friday morning after the jobs report is published, providing a final opportunity to set expectations for the coming meeting. Goolsbee Says Economic Data Justifies Multiple Rate Cuts The longer-run trend of labor-market and inflation data justify the Fede easing interest-rate policy soon, and then steadily over the next year, Chicago Fed President Austan Goolsbee said in an interview with MarketWatch. "The long arc shows inflation is coming down very significantly, and the unemployment rate is rising faster" than Fed officials had expected in June, Goolsbee said. Given the more favorable inflation data and the less favorable unemployment data, "it is pretty clear that the path is not just rate cuts soon," Goolsbee said, but multiple cuts over the next 12 months. - MarketWatch U.S. Economy The Crushing Financial Burden of Aging at Home Americans want to grow old in their own homes. But pursuing that dream has gotten harder , and is putting huge financial and emotional strains on families. Soaring costs of in-home care, medical advances that extend lives but require ongoing help, and the growing ranks of older baby boomers are creating new pressures. Spouses, adult children and siblings are putting their lives on hold to care for relatives, wrestling with sleep deprivation and constant worry. Families are draining savings to hire help, pay for medical care, and modify homes. Glynn's Take: Attacks on RBA Independence Carry a Big Risk By James Glynn With pitchforks in hand, barbarians were once again at the gates of the Reserve Bank of Australia this week, demanding it join its global peers and cut interest rates immediately, lest it send the commodity-rich economy into a deep dive that destroys jobs and businesses. The metaphorical mobs outside the walls of the central bank were being egged on by comments from Canberra, with Treasurer Jim Chalmers warning on Monday that high interest rates are "smashing the economy." RBA Gov. Michele Bullock poured fuel on the fire on Thursday by standing strong in her position that inflation remains a problem, and interest rates are unlikely to fall near term. Read more. Financial Regulation Flooding Is Getting Worse-and Fewer Homeowners Have Insurance Growing swaths of the U.S. that have never before been flooded are now in danger of being swamped as climate change fuels more intense rainfalls. Yet the government's official flood maps haven't been updated to reflect that rainfall risk, lulling some homeowners into a false sense of security . Bank of America Shared Nonpublic Information With Investors in India, Whistleblower Says Bank of America is investigating allegations that bankers in Asia shared nonpublic information with investors before the bank sold hundreds of millions of dollars worth of stock. 8:45 a.m.: FRB New York President John Williams speaks at Council on Foreign Relations event 11 a.m.: Fed Governor Christopher Waller speech on the economic outlook Research Fed May Be Tempted to Cut More Heavily if Jobs Growth Slows A weaker jobs market increases the likelihood of a sharper rate cut by the Fed this month, LPL Financial chief economist Jeffrey Roach says in a note to clients. Hiring slowed again last month, according to a report by ADP released Thursday. If official Labor Department data due Friday show a similar weakening in the jobs market, chances rise for a cut of 50 basis points at the coming Fed policy meeting on Sept. 18, Roach says. - Joshua Kirby Basis Points The service side of the U.S. economy grew again in August, but momentum faded in response to higher interest rates, slower sales and less customer traffic, a new survey found. An index of service businesses rose a hair to 51.5% last month from 51.4% in July, the Institute for Supply Management said. Numbers over 50% are viewed as positive for the economy. Still, the index has been stuck in a narrow range since the spring in a sign the economy has softened. - MarketWatch The number of Americans who applied for unemployment benefits last week fell slightly to 227,000 and touched an eight-week low, reinforcing the view that companies are reluctant to lay off workers even as they clamp down on new hiring. New claims declined by 5,000 in the seven days that ended Aug. 31 from 232,000 in the prior week, the government said Thursday. It's the lowest level since early July. - MarketWatch The eurozone economy grew less rapidly in the three months through June than previously estimated, making it more difficult for the European Central Bank to secure a soft landing as it seeks to tame inflation. The long slide in German factory output continued in July , increasing the risk that the eurozone's largest economy is falling into a second straight quarter of contraction. Executive Insights Here is our weekly roundup of stories from across WSJ Pro that we think you'll find useful. Artificial intelligence and its staggering costs have frayed the nerves of investors, but CEOs still believe they can make the technology pay off. AI has brought a host of new obligations to the role of chief privacy officer, among them decisions on ethics and cybersecurity. Before he joined Sorrento Therapeutics, the drugmaker's restructuring chief hosted a party for the Houston bankruptcy judges who later oversaw the company's liquidation. Falling costs of renewable energy have made desalination a more affordable way to help alleviate the stress that droughts and data centers are putting on water supplies. About Us WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ's global team of reporters and editors. This newsletter was compiled by markets reporter Hardika Singh in New York. Send your tips, suggestions and feedback to [[email protected]]. This article is a text version of a Wall Street Journal newsletter published earlier today.