By Senad Karaahmetovic
After U.S. stocks sold off on Friday in response to Fed Chair Powell’s remarks at the Jackson Hole conference, the market is now shifting its focus towards the upcoming nonfarm employment report that is due this Friday.
The consensus expects 305,000 jobs to be added in August, a 0.4% MoM average hourly earnings growth, and a further drop in the unemployment rate to 3.4%.
A Citi economist believes the August employment report “should still show a very tight labor market,” despite some analysts calling for a bigger drop in the headline employment increase after a very strong July job growth.
However, she warns that upside risks are not priced in by the market.
“Especially following a surprise increase in job openings in July, upside risks of an even stronger August headline employment increase may be underappreciated. Markets will be more inclined to price further hawkish outcomes for Fed policy on an overall still-solid report as we expect,” she added.
The economist has reiterated Citi’s base case for a 75bp hike by the Federal Reserve on September 21.
“Following a hawkish Jackson Hole speech from Fed Chair Powell, markets appear inclined towards pricing more hawkish policy outcomes, suggesting a possibly greater reaction to another overall strong employment report.”