Wall Street’s soft-landing optimism set to be challenged by key jobs report
US stocks mixed amid inflation uptick and sentiment rise
US stocks ended mixed on Friday as investors digested fresh inflation data and a revision higher to the Michigan consumer sentiment index. Ahead of the final session in September, the Nasdaq 100 is up 2.2% month-to-date, the S&P 500 has added 1.6%, and the Dow Jones has gained 749 points (1.8%).
On Friday night, the Federal Reserve (Fed)’s preferred measure of inflation, the US core personal consumption expenditures (PCE) price index, rose by 0.1% month-on-month (MoM) in August, bringing the annual rate to 2.7% from 2.6%. Meanwhile, the September Michigan consumer sentiment index was revised up to 70.10 from 69.00, marking the highest level in five months. This mix of low inflation and increased consumer sentiment supports current optimism about the US economy.
US election outlook
Ahead of this week’s first and probably only vice-presidential debate, the US election remains on a knife’s edge, with a divided Congress likely. There’s also a strong chance that Donald Trump will contest the election results if he loses, leading to uncertainty in the weeks after the election.
Key events to watch this week
Looking ahead, all eyes will be on Friday’s non-farm payrolls report. Leading up to it, there will be interest in speeches from several Fed officials, including Chair Jerome Powell, as well as in the Job Openings and Labor Turnover Survey (JOLTS) job openings and Institute for Supply Management (ISM) Manufacturing and Services Purchasing Managers’ Indexes (PMI) data.
What to expect from non-farm payrolls
Date: Friday, 4 October at 10.30pm AEST
Last month’s jobs report was mixed. Headline payrolls came in at 142,000, missing expectations of 165,000, with significant downward revisions for the two prior months. July’s already weak figure was revised down to 89,000 from 114,000. On the upside, the unemployment rate eased to 4.2% from 4.3%.
This cooling in the labour market prompted the Fed’s jumbo 50 basis points (bps) interest rate cut earlier this month, the first since March 2020. Fed Chair Powell described the rate cut as a risk management decision, saying it would help maintain the strength of the economy and labour market.
For September, the expectation is that the US economy will add 140,000 jobs and that the unemployment rate will rise to 4.2%. If the US economy adds 100,000 jobs or fewer and the unemployment rate rises to 4.3% or higher, it could reignite fears that the Fed is behind the curve and reinforce expectations of another 50 bps rate cut in November. The rates market is currently pricing in 38 bps of easing at the 7 November Federal Open Market Committee (FOMC) meeting and a total of 76 bps of rate cuts by year-end.