Non-farm Payrolls Preview: Can the Labor Market Ease Fed Rate Hike Expectations? U.S. Stocks, Dollar, and Gold Face Critical Test

FX168 News, September 4—— The upcoming August non-farm payrolls report is crucial for the FOMC meeting in September, especially as the Federal Reserve issues hawkish signals and inflation concerns are rising. The market consensus expects an increase of around 56,000 jobs, with the unemployment rate holding at 4.1%. Given the recent cooling signals such as the weak ADP figures, the resilience of the labor market will directly determine future rate hike decisions. Stronger-than-expected data could intensify expectations for policy tightening, putting pressure on tech stocks and gold and supporting the US dollar. Conversely, a significant miss in the data may cool rate hike expectations, benefit gold and growth stocks, and put pressure on the US dollar.

The US Bureau of Labor Statistics will release the August non-farm payrolls report at 8:30 PM (UTC+8) on September 4. Against the backdrop of Federal Reserve Chair Warsh delivering a hawkish speech in Jackson Hole and the resurgence of inflation concerns brought by rising international oil prices, this employment report will become one of the most critical macro data points ahead of the September FOMC meeting.

August Non-Farm Payrolls Expected to Resume Growth, but US Labor Market Remains in Slow Expansion

Recently, the US labor market has significantly cooled. In July, non-farm payrolls unexpectedly dropped by 23,000, with the unemployment rate still holding at 4.1%. At the same time, non-farm data for May and June were cumulatively revised down by 103,000, showing the actual performance of the labor market was weaker than previously reported. Average hourly earnings in July grew 3.2% year-on-year, with the labor force participation rate stable at 61.4%.

For the upcoming August report, the latest survey expects non-farm payrolls to increase by about 56,000 (compared to around 58,000 one week ago), with the unemployment rate still expected at 4.1%. The data show that even if August non-farm meets expectations, the US labor market is only experiencing a mild recovery from the July contraction. Compared to the past years when jobs could increase by hundreds of thousands, the current employment growth has notably slowed.

The latest ADP data further corroborates this assessment. In August, the US private sector added only 38,000 jobs, below market expectations of 48,000 and less than the revised 46,000 for July, marking the slowest growth since January this year. The education and healthcare services sector added 45,000 jobs, but manufacturing lost 17,000, and professional and business services lost 16,000, indicating that businesses remain cautious about hiring.

It is noteworthy that at the Jackson Hole meeting, Warsh emphasized that if the Federal Reserve cannot be confident that underlying inflation is returning to the 2% target rapidly enough, policymakers will need to take further action. Following this speech, the market significantly raised expectations for a September rate hike. As of this week, the rate market is still pricing about a 60% probability of a 25-bp rate hike in September.

Meanwhile, US-Iran tensions have pushed international oil prices up again, and US long-term Treasury yields have also climbed sharply. Therefore, whether August non-farm can prove that the labor market remains sufficiently resilient will directly impact whether the Fed has further room for rate hikes in September.

——For example, new jobs exceed 100,000 while the unemployment rate holds at 4.1% or even decreases—it would mean that July's job downturn was more likely a short-term fluctuation. Labor market resilience combined with high inflation will further increase the likelihood of a rate hike in September.

it indicates that the labor market is still expanding, but at a very mild pace. Such a result alone may not be enough to determine the September policy direction, and the Fed will need to evaluate together with the August PPI and CPI data to be released afterwards.

it would indicate that the labor market is cooling faster than the Federal Reserve expects. Even if inflation remains high, the threshold for the Fed to continue raising rates will be significantly higher.

How Do Non-Farm Data Impact US Stocks, the Dollar, and Gold?

For US stocks, the S&P 500 index is still up over 12% year-to-date. Corporate earnings and AI capital expenditures continue to support tech stocks, but US Treasury yields and Fed rate hike expectations weigh on valuations. If non-farm far exceeds expectations, the market may further bet on a September rate hike, rising yields would pressure high-valuation tech stocks, with the Nasdaq potentially being more sensitive than the Dow Jones. Conversely, if job growth is slightly below expectations but no obvious recession signal emerges, waning rate hike expectations may send yields lower, which could benefit growth and tech stocks. What truly warrants caution is a significant non-farm miss accompanied by a rising unemployment rate, which could increase market concerns about recession and corporate earnings, putting US stocks under pressure.

For the US dollar, the non-farm payrolls have a direct impact on short-term moves. Stronger-than-expected job data means the Fed has more room to continue controlling inflation, heating up rate hike expectations for September and supporting the dollar index. If job growth is significantly below 50,000 or even turns negative again, the market may cut its current roughly 60% bets on a rate hike, and falling short-term Treasury yields would put pressure on the dollar.

For gold (XAUUSD), the key impact of the non-farm report still lies in its influence on Fed rate hike expectations and Treasury yields. As of 10:20 AM (UTC+8) Friday, spot gold has rebounded near $4,480, mainly driven by the retreat in the dollar and yields; meanwhile, the market still expects about a 50% chance of a rate hike in September. If non-farm is significantly stronger than expected, especially if new jobs exceed 100,000 with accelerated wage growth, Treasury yields and the dollar may rise again, and gold could once again face selling pressure, testing the 100-day moving average support around $4,360 or even $4,290. Conversely, if job growth is well below expectations, the market will cut September rate hike expectations, and gold may benefit from falling yields to further rebound, possibly breaking the 200-day moving average resistance near $4,533 and even testing resistance around $4,700 in the future.

As of 10:21 (UTC+8), spot gold is trading at $4,476.32 per ounce.