US Payrolls Data Likely to Seal Fate of Fed Rate Cut

US Payrolls Data Likely to Seal Fate of Fed Rate Cut

Friday’s US non-farm payrolls report is set to drive market sentiment, with analysts expecting 160,000 new jobs and unemployment at 4.2%. Futures indicate a 40% chance of a 50bp Fed rate cut, with a weak report potentially increasing that likelihood while sending bond yields lower. Nasdaq futures dipped 0.5%, and Brent crude faces its worst week in over a year, risking a drop below $70 a barrel.

Equities

The FTSE 100 slipped 0.3% on Thursday, marking its fifth consecutive decline, driven largely by a 2.9% fall in the pharma and biotech sector. AstraZeneca dropped 3.9% following reports that several of its employees in China were detained for questioning over possible illegal activities. Primark owner Associated British Foods (ABF) saw its shares plunge 8.5% after it warned that like-for-like sales would decrease by 0.5% in the second half of the year due to adverse weather conditions in the UK and Ireland. Insurers Prudential and Admiral both fell between 1.6% and 3.3% as they traded ex-dividend. However, homebuilders gained ground, with Vistry jumping 8.5% after announcing a £130 million share buyback.

In the US, the S&P 500 slipped 0.3% and the Dow Jones fell 0.54%, as both indices were dragged down by mixed trading ahead of key jobs data. Healthcare and industrial stocks led the declines in the S&P 500, but consumer discretionary stocks performed better. Tesla surged nearly 5% after the company announced plans to launch its full self-driving software in Europe and China early next year, pending regulatory approval.

Meanwhile, Frontier Communications tumbled 10% after Verizon agreed to acquire the company in a $20 billion all-cash deal, with Verizon’s own stock down 0.4%. JetBlue saw a 7% boost after raising its revenue forecast for the third quarter. The Nasdaq bucked the trend with a modest gain of 0.25%, supported by tech stocks. However, broader concerns about the labour market persisted, with private employers adding the fewest jobs since January 2021, raising the prospect of a sharper economic slowdown.

Total US market volume was slightly lower than average, with around 10.6 billion shares changing hands compared to the 20-day average of 10.7 billion.

Forex & Commodities

The US dollar's recent weakness is expected to stall over the next three months, despite growing market bets on Federal Reserve rate cuts, according to a Reuters poll. The dollar index lost most of its midyear gains as traders began pricing in around 100 basis points of easing by year-end, nearly double earlier expectations. However, most strategists predict the dollar will hold steady or rebound, with 45 out of 66 respondents forecasting limited further weakness.

The euro is projected to drop slightly to $1.10 by the end of November before stabilising near $1.12 within a year. Meanwhile, the Japanese yen, which has gained around 12% from its 38-year low, is expected to rise further, reaching 139.67 per dollar over the next year.

Gold prices hovered near a one-week high at $2,519 per ounce, boosted by bets on a US interest rate cut, with markets increasingly expecting a 50 basis point reduction by the Federal Reserve this month. Gold has risen 22% this year as investors turn to safe-haven assets. Silver was slightly lower at $28.8, while platinum rose 0.9% to $932.55.

Oil prices steadied, with Brent crude at $72.82 and West Texas Intermediate at $69.27. Crude inventories fell by 6.9 million barrels, exceeding expectations, and OPEC+ has delayed its planned production hikes for October and November, but demand concerns continue to weigh on market sentiment.