For global market investors, perhaps there has been no other "non-farm night" in the past few years that has received as much attention as tonight...

On the one hand, with the shift of the Fed officials' monetary policy focus from inflation control to preventing job losses, the influence of non-farm data on the financial market has gradually surpassed the more important CPI during the epidemic period; On the other hand, people have just experienced an epic "Black Monday" caused by weak non-farm data last month, and many people are still frightened until today.

At the same time, in terms of timing, this non-farm night is almost certain to play an extraordinary role in determining the magnitude of interest rate cuts by the Federal Reserve later this month. Even Nick Timiraos, the journalist known as the "New Fed News Agency", emphasized the importance of this data in an article titled "August Employment Report Will Determine the Magnitude of Fed Rate Cuts in September" in the early morning Beijing time today.

Timiraos mentioned that a robust employment report may prompt officials to initiate an interest rate cut cycle with a magnitude of 25 basis points. And if hiring is weak or unemployment rates soar (as in July), it may lead to a larger interest rate cut. In addition, Friday is also the last day when Federal Reserve officials can publicly communicate before the pre-meeting silent period begins. New York Fed President John Williams and Fed Board member Christopher Waller will deliver speeches after the non-farm employment report is released on Friday. This will be the last opportunity for Federal Reserve officials to convey their expectations to the market before the upcoming September meeting.

So, on this big day, which can be regarded as the "decisive battle" of the stock, bond, and foreign exchange markets, what kind of answer will the US non-farm data give to the market? Will the data performance be another "mine explosion" like last month? How will the market trends of various asset classes tonight?

Below, let us take stock before tonight arrives:

Non-farm preview: What is the market's estimated median tonight?

According to the median expectation of economists compiled by the industry, the U.S. non-farm employment number for August, which will be released at 20:30 tonight, Beijing time, is expected to increase by 0.165 million, significantly higher than the previous value of 0.114 million. The unemployment rate is expected to decrease slightly from the previous month's 4.3% to 4.2%. In terms of wage data, the average hourly wage for July is expected to increase by 3.7% year-on-year, higher than the previous value of 3.6%, and an increase of 0.3% compared to the previous month's increase of 0.2%.

Due to the relatively stable downward trend of U.S. inflation at present, the importance of the wage indicator in the non-farm data will not be as prominent as in previous years. The two key focuses of tonight's non-farm night should be on the main indicators of non-farm employment and the unemployment rate.

Currently in investment banks, the lowest forecast for the main non-farm indicator is 0.1 million people (by Landesbank BW), and the highest forecast is 0.208 million people (from Regions Bank).

It is worth noting that two major investment banks on Wall Street, Goldman Sachs and JPMorgan, have both released job forecasts that are below market consensus expectations (0.155 million and 150,000 respectively). As for whether to believe these two banks, investors may decide for themselves (according to zerohedge, the two banks have had a poor track record in non-farm employment forecasts in the past year).

From a seasonal perspective, there is a somewhat unfavorable phenomenon in the historical non-farm data for August. Adam Button, an analyst at financial website Forexlive, pointed out that in the 23 years of August reports, the preliminary non-farm data (the initial data released on the night of the non-farm) was lower than expected in 17 years. Subsequently, the non-farm data for August tends to be revised upward in multiple rounds. According to statistics, the weakness of the initial non-farm data in August often manifests in a number of similar industries - information, professional services, manufacturing, and retail trade. Economists warn that the situation in these industries on Friday is worth paying attention to.

In terms of the unemployment rate, it is expected that the U.S. unemployment rate for August will decrease to 4.2%.

Previously, after the unexpected increase in the U.S. unemployment rate to 4.3% in July, the "Sam Rule" indicating economic data has been triggered.

What needs to be reminded to investors at the moment is that even if the August unemployment rate really falls to 4.2% as expected, it will still be above the caution line that triggers the "Sam Rule", and the difference in the "Sam Rule" will further increase to 0.56%, mainly due to the impact of rising base comparisons. The "Sam Rule" refers to the start of a possible economic recession once the three-month moving average of the unemployment rate exceeds 0.5 percentage points or more than the lowest three-month moving average in the past 12 months.

Looking back on this week: early warning indicators in the job market have planted hidden concerns.

In each of the previous non-farm 'super weeks,' labor market indicators released by the US government and private organizations are actually more than just non-farm. Therefore, observing some US employment indicators that are released early in the week can often provide advance predictions for the specific performance of non-farm. However, as for this week, the performance of a series of leading US employment indicators seems to be less optimistic.

The latest bad news comes from Thursday, when the 'mini non-farm' ADP data released by employment data processing company ADP showed that private sector employment growth in August was only 0.099 million, the smallest increase since January 2021.

Nela Richardson, Chief Economist at ADP, said that after two years of significant growth, the downward trend in the US job market has resulted in a recruitment rate below normal levels. The next indicator to watch is wage growth, which is stabilizing after a sharp slowdown following the pandemic.

Adam Button, an analyst at the financial website Forexlive, also stated that there is increasing evidence that the US job market is cooling down. Companies are reducing their hiring scale to cope with high costs and interest rates, as they are unwilling to lay off employees completely. The latest private employment data further confirms the slowing labor demand, which helps further suppress price pressures.

In addition to the mini non-farm, the latest layoffs are also worrisome. The Challenger company announced on Thursday that the number of layoffs by US companies in August reached 75,891, far higher than the 25,885 in July, a month-on-month increase of 193%, the highest data since August 2009, when the economy was still recovering from the severe impact of the global financial crisis.

Andrew Challenger, Senior Vice President of Challenger company, stated that 'the sharp increase in layoffs in August reflects the growing economic uncertainty, and companies are facing multiple pressures, from rising operating costs to concerns about potential economic slowdown. The current trend of layoffs is very similar to last year, as continued pressures present challenges to companies' labor decisions.'

On Wednesday of this week, the US job openings data for July, which the Federal Reserve paid particular attention to, also fell to its lowest level since early 2021, consistent with other signs of slowing labor demand.

Perhaps one of the few good news in the US labor market this week comes from the initial claims. The data released on Thursday showed that the number of initial claims for unemployment benefits last week was 0.227 million, which is basically consistent with the expected 0.23 million. The seasonally adjusted number of initial claims even fell to 0.189 million, reaching the lowest point in nearly 10 months. Continued claims data also fell to a three-month low.

Perhaps it is the impact of most of the leading indicators of US employment mentioned above that leads to Goldman Sachs' lower-than-market-consensus estimate for tonight's nonfarm payrolls. Goldman Sachs' various leading indicators show a median of only 0.133 million people added to nonfarm payrolls, although its own forecast (0.155 million people) is slightly higher than this figure.

How will the financial markets spend the nonfarm payrolls night?

As for how the global stock, bond, and currency markets are currently reacting to the nonfarm data tonight, we have already covered this in our morning report to investors and will not elaborate here.

In summary, the impact of tonight's data on the market is quite clear. In general, the logic of "good data equals good news, bad data equals bad news" applies to US stocks, US bond yields, and the US dollar.

As for the impact on the Federal Reserve's decision, as the "New Fedcomm" said, if there is no evidence that the employment weakness seen in July continues into August, Fed officials may oppose a 50-basis-point rate cut this month. However, if the August employment report released this Friday shows another increase in the unemployment rate and an acceleration in the slowdown in job growth, several officials who were open to a rate cut at the end of July may support a 50-basis-point rate cut in September, and their views will also gain broader support.

In terms of specific market conditions, JPMorgan listed five scenarios that may exist in the performance of different nonfarm data tonight in its latest report:

1. Nonfarm employment exceeds 0.3 million people (5% probability): This is a small probability tail risk scenario. The last time people saw nonfarm employment exceed expectations by more than 0.15 million people was on February 2nd, when the S&P 500 and Nasdaq 100 indexes rose by 1.1% and 1.7%, respectively. In this scenario, we may see that as US bond yields rise, the market quickly eliminates the possibility of a 50-basis-point rate cut in September. In this case, average hourly earnings will be key to assessing whether the unexpected strength in the labor market aligns with wage inflation. The rebound in bond yields may become a resistance to stock market gains, but the improvement in economic growth will ultimately benefit risk assets. Overall, the S&P 500 index is expected to rise by 0.25%-0.50% in this scenario.

Non-farm employment is expected to be between 0.2 million and 0.3 million (25% probability). Given that the current highest market expectation is 0.208 million, non-farm employment within this range will exceed most market expectations, which will help rebuild confidence in growth from August data. Recent GDP, spending, and inflation data may show reassuring signs that last year's high growth in real GDP is continuing. However, the heating up of average hourly wage data may reignite concerns about wage inflation. In addition, if the data is at the top end of the range, it could bring September rate cut expectations to 25 basis points and reduce the expected rate cut for the year to 75 basis points (currently the market is expecting 110 basis points). Overall, the S&P 500 index is expected to rise by 1.00%-1.50% in this scenario.

Non-farm employment is expected to be between 0.15 million and 0.2 million (40% probability). This situation is in line with market expectations. JPMorgan's own forecast is to add 0.15 million jobs, keeping the unemployment rate at 4.3%. Considering the strong trend in labor supply and the weakness in labor demand, this situation would be more in line with market expectations of a 50 basis points rate cut by the Federal Reserve in its September meeting. Even if the data ends up in the upper limit of this forecast range, JPMorgan believes that given the weak labor demand and seemingly controlled core inflation, the Federal Reserve will cut rates by 50 basis points in September. Overall, the S&P 500 index is expected to rise by 0.75%-1.25% in this scenario.

Non-farm employment is expected to be between 0.05 million and 0.15 million (25% probability). As the market has quickly adapted to increased recession risk, the market's immediate reaction is expected to be negative. Given the risk position on Tuesday, the market's reaction to this non-farm event may be calmer than before. The market will quickly build expectations of a 50 basis points rate cut, and the biggest downside risk is if the market believes in the narrative of an economic recession/growth panic. Overall, the S&P 500 index is expected to decline by 0.50%-1.00% in this scenario.

Non-farm employment is expected to be below 0.05 million (5% probability). This is another tail risk scenario, as non-farm employment has not been below 0.1 million since December 2020. This would immediately raise concerns about economic growth and we could see expectations of a 50 basis points rate cut in September and even the introduction of expectations of a 75 basis points rate cut. In this case, similar to past rate cut cycles, the market may perceive that the US has entered a recession, making it unwise to buy into the first rate cut. Overall, the S&P 500 index is expected to decline by 1.25%-2.00% in this scenario.

Similar to JPMorgan, Goldman Sachs' stock trading division has also made estimates of the impact of non-farm employment under different scenarios. The bank's forecasts are as follows:

Non-farm employment > 0.25 million: S&P 500 index rises by 0.5%-1%.

Non-farm employment between 0.2 million and 0.25 million: S&P 500 index rises by at least 1%.

Non-farm employment between 0.15 million and 0.2 million: S&P 500 index rises by 0.25%-0.5%.

Non-farm 0.1 million-0.15 million: S&P 500 index fell 0-0.5%.

Non-farm<0.1 million: S&P 500 index will drop by at least 1%.

Goldman Sachs bond trading department also reminds investors to pay attention to the unemployment rate and believes that it will have the following impact on the magnitude of the Fed's interest rate cut in September:

Unemployment rate at 4.19% or lower = as long as the employment figures are positive, the interest rate will be cut by 25 basis points in September.

Unemployment rate at 4.20-4.29% = if the employment figures are higher than 0.15 million, the interest rate will be cut by 25 basis points in September; if the employment figures are lower than 0.15 million, the interest rate will be cut by 50 basis points.

Unemployment rate at 4.30% or higher = the interest rate will be cut by 50 basis points in September.

Editor/ping