US Nonfarm Payrolls Report to Set Market Tone Ahead of Long Weekend

The upcoming US Nonfarm Payrolls report is expected to give direction to the markets ahead of the long US weekend. The report, which arrives today, has less authority than usual due to a recent statement by Fed Governor Waller that August's CPI will be the deciding vote on September's interest rate hike. This means that a weak number can likely kill the chances of a hike, but an ordinary beat does not secure it as the ISM services already provided plenty of nominal heat with new orders at 60.9 and prices paid at 72.6.

The FOMC arithmetic for September is becoming stranger than the roughly 50/50 hike probability in futures suggests. The current best public reconstruction is 5 leaning towards a hike, 6 leaning towards holding rates, and Powell's vote is unknown. To achieve a hike, Warsh needs to take someone from the hold camp, whereas if Powell votes for holding, it would immediately make it 7-5.

On the European front, German factory orders beat sharply due to large orders, but construction contracted far less severely than in July. The sector tape was defensive under the surface, and the ECB is widely expected to close a short hike cycle this month rather than extend it.