This week’s data will do all of the talking as Fed officials will be in a communications blackout ahead of the November 7 FOMC meeting. Though the Fed has telegraphed its intention to cut by 25bps at next Thursday’s gathering, the economic releases could have some bearing on the tone coming out of the meeting. That said, the marquee release, October non-farm payrolls data, will be heavily affected by Hurricane Milton, which hit Florida during the survey week for the BLS.
Data expectations
Analysts currently estimate that 120,000 jobs were added to the headline non-farm payrolls in October, while the unemployment rate is expected to stick at 4.1%. The latest Fed projection saw that figure at 4.4% by year end, with just one more report to come. Wage growth should also be more muted after the surprise jump to 0.4% in September and is seen slowing to a relatively benign 0.3% m/m. As we always say, watch out for revisions to the headline print, which can spark volatility to price action.
We note that the more frequent weekly initial jobless claims for the week that coincided with the BLS survey window for the jobs data were mixed. However, continuing claims rose to a three-year high and were around 70k higher than during the September payroll survey week, which is the biggest increase since April 2022.
The underlying trend has been tough to work out lately due to wide swings in the data, especially after last month’s blockbuster 254,000 increase. This time around, hurricanes and strikes will be one-off factors that again cloud the longer-term trends. The Boeing strike, which economists reckon affects 35-40,000 workers, should impact manufacturing, with likely knock-on effects on suppliers. Hurricanes in the south east have impacted worker’s ability to get to their place of employment.
Market reaction
If the headline payrolls print below 100,000 and the unemployment rises to 4.2% or above, expect the market to price in the prospect of more policy easing. Bets will cement two quarter point rate cuts next week in November and then in mid-December at the final FOMC meeting of 2024. The dollar will likely sell off and the stock market rally could struggle, certainly with a much bigger disappointment, as fears rise of a deeper slowdown and recession.
The flip side and a stronger report would boost the greenback and underpin support for the view that the Fed is in no rush to cut rates quickly but may prefer a more “orderly” easing cycle. There may also be a sense of the Fed looking through the noise of the strike and weather distortions, with markets expecting a small rebound from these temporary issues in the next report.