US August Nonfarm Payrolls expected to rebound to 58K after July slump

U.S. government data is due to be released on Friday regarding August's Nonfarm Payrolls, with market anticipation of an increase of 58,000 jobs following a surprise drop of 23,000 in July. The unemployment rate is forecast to remain unchanged at 4.1% while wage inflation, measured by Average Hourly Earnings, is expected to moderate to 3% from 3.2%.

Despite initial appearances, the July employment report indicated the labor market was not as dire as thought due to job losses being primarily in government roles, particularly in education, and seasonal fluctuations in leisure and hospitality. Analysts project a rebound in August, with figures potentially reaching 95,000, although they caution of risks leaning hawkish and caution against an overly positive outcome.

Fed Chair Kevin Warsh signaled a hawkish stance during the Jackson Hole Symposium, prompting markets to reassess the likelihood of a rate hike in September. The CME FedWatch Tool currently estimates a 60% probability of a 25 basis point hike on September 16, up from 35% prior to Warsh's comments. Warsh's remarks emphasized the Fed's commitment to a 2% PCE target and indicated a reluctance to ease financial conditions prematurely, supporting the US Dollar.

A significant drop in August's NFP could lead investors to question the Fed's September hike decision, especially if paired with a rise in the unemployment rate. Conversely, a reading above 40,000 may be deemed sufficient for the Fed to concentrate on inflation control. Strategists at BNY Mellon consider the August NFP report crucial for rates, FX, and risk assets, noting that a weak print could undermine the hawkish market sentiment following the Jackson Hole event.

A robust jobs report is seen as necessary but insufficient for a September rate hike, with inflation playing a more significant role in shaping Fed policy.