US Jobs Report Due: Will Softer Hiring Confirm Pause in Rate Hikes?

The US jobs report for September is set to be released on Friday at 1.30pm UK time, and markets are pricing around a 28% chance of an October rate rise ahead of publication.

Credit Agricole forecasts 90,000 additional jobs in September, with unemployment edging up to 4.2% and monthly wage growth slowing to 0.2%. The bank argues that reduced immigration has lowered the number of new jobs needed to keep unemployment stable, making modest payroll gains more significant than they would have been previously.

JPMorgan's market team sees scope for stronger hiring following ADP, but notes that a strong job creation alongside restrained wage growth would tell a different policy story from hiring strength accompanied by renewed pay pressure. They also note that October hike expectations had fallen from around 70% on Monday to 37% on Wednesday after the PCE inflation release and comments from New York Fed President John Williams.

ING and MUFG highlight a complication for currency markets: the Dollar has continued to strengthen even as reasons for aggressive Fed tightening have weakened. ING sees additional vulnerability from the sell-off in French government debt, which could weigh on the Euro independently of US employment figures. MUFG questions the scale of tightening priced in, citing the improvement in underlying inflation following downward revisions to the PCE data.