FX168 Financial News Agency (Europe) - Before the key US employment data on Friday, global markets are dominated by cautious sentiment, with pressure on European stocks and a sharp decline in US stock futures. This is the last employment market report before the Fed's monetary policy decision on September 18, and it plays an important role in guiding the rate cut intensity.

The European Stoxx 600 index fell by 0.6%, marking the fifth consecutive trading day of decline. The index has fallen by 3% so far this week, ending four weeks of consecutive gains, and is expected to face its worst week since the market crash in early August.

The German DAX index fell by 0.7%. Earlier data showed a 2.4% decline in industrial production in Germany in July, while analysts had predicted a 0.3% decline.

US stock index futures fell, as traders prepare for the upcoming release of August non-farm payroll data. This will be an important basis for determining the health of the US economy and the scale of the Fed's interest rate adjustment this month.

Nasdaq 100 index futures fell by over 1%, while S&P 500 index futures indicated a fourth consecutive day of decline.

Earlier, Asian stock markets showed mixed performance, with trading in Hong Kong suspended due to a typhoon.

The whole world is waiting for the non-farm payroll report.

Global markets are all waiting for the US August employment report. Prior to this, a series of data has exacerbated concerns about a recession. The influence of the August non-farm payroll data is so great because Fed Chairman Jerome Powell has candidly stated that policymakers do not want to see further weakness in the labor market, laying the foundation for the upcoming rate cut.

Economists predict that the report will show a rebound in employment in August, with a slight decrease in the unemployment rate, indicating a stabilization of the situation after July. According to the median forecast of economists surveyed by Bloomberg, the number of non-farm employment may increase by 165,000 in August, higher than the 114,000 in July. The unemployment rate is expected to decline to 4.2%.

However, a series of recent weak partial data suggests a downward bias, which intensifies speculation of a 50 basis point rate cut on September 18.

For the stock market, the possibility of an economic recession is a complex factor to consider. A weak report could increase the likelihood of a significant rate cut, but at the same time exacerbate recession worries, leaving the market's reaction uncertain.

Holger Schmieding, Chief Economist at Berenberg Bank, said that monthly labor market data in the United States is one of the most important data for the world's largest economy. So far, most US employment data indicates a significant loss of momentum consistent with a soft landing scenario.

Will the Fed cut interest rates by 50 basis points?

Friday's report will help policymakers assess whether the US economy is heading for a soft landing or a recession, as this week's mixed data has caused market volatility. Swap traders have fully priced in the expectation that the Fed will cut interest rates by 25 basis points at its meeting in two weeks, with a 35% chance of a 50 basis point cut.

The currency market currently believes that there is a 57% chance of a 25 basis point rate cut by the Fed in September, with a total reduction of 111 basis points by the end of 2024.

"Due to mixed economic signals and market focus on the Fed's interest rate cut, it is difficult to predict the market's reaction to this report," said Kathleen Brooks, Research Director at XTB. "Some people believe that regardless of the outcome, this employment report will bring downward risks to the U.S. stock market."

Barclays strategist said that after the market's pullback this week, the stock market is more prepared for potentially soft non-farm employment data, which means that a report in line with expectations could trigger a relief rebound.

Emmanuel Cau's team wrote in the report that the market's pricing of recession risks is not balanced. If there are problems, there is more downside potential than upside potential in case everything goes smoothly while the stock market hovers near record highs. History has shown that the stock market always faces challenges before and after the Federal Reserve's first interest rate cut, while the stock market rebounds without an economic recession, "so we are now in a situation where 'good is good' / 'bad is bad'."

"As we study whether a soft landing can really be achieved, the market may experience volatility," said Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management Co. "Investors need to be prepared for more volatility as we transition from a rate hike cycle to a rate cut cycle."

Bilal Hafeez, CEO and Research Director of Macro Hive, said, "Risk markets are more sensitive to growth dynamics than to interest rates. If the data is weak, risk markets such as stocks may perform poorly."

The yen is feared to become the focus.

In the currency market, the US dollar index has fallen for the third consecutive day, as the market expects the monthly employment data to fall short of expectations, which may prompt the Federal Reserve to launch monetary easing policies and make significant interest rate cuts.

The yield on 10-year US Treasury bonds fell by 2 basis points to 3.7%.

German commercial bank currency analyst Volkmar Baur said that if today's US non-farm payroll data is significantly weak, the US dollar may come under further pressure, which could reignite concerns about a US economic recession and prompt the market to price in a greater likelihood of a 50 basis point rate cut by the Federal Reserve at its September meeting. A stronger report would alleviate these concerns, increase the likelihood of a 25 basis point rate cut, and boost the US dollar. If the data meets expectations, it will clear the way for the Fed to begin cutting interest rates this month, but this has already been priced in, so the US dollar may recover some of this week's losses.

In addition, currency strategist expect that if the employment data strengthens the expectation of a 50 basis point rate cut, the yen has a good chance of testing the high point again in August. On Friday, the yen appreciated against the US dollar to around 143.

Gareth Berry, a strategist at Macquarie Group, said that if there were any unexpected data, the yen "will be the focus."

commodity equity index

Spot gold maintains a consolidating trend at a high level, currently consolidating below $2520, waiting for further breakthrough clues.

Pepperstone research strategist, Dilin Wu, said in a report that gold has been fluctuating narrowly recently. Due to the mixed performance of US economic data, the bullish sentiment has maintained a slight advantage. The upcoming US non-farm payroll report may be the key to the next major trend in gold prices. If job growth is less than 0.1 million people and the unemployment rate remains at 4.3%, the market will increasingly lean towards a 50 basis point rate cut. This is bullish for gold, and this situation will trigger concerns about economic deterioration, further pushing up the gold price. Stronger employment data will strengthen expectations for a smaller 25 basis point rate cut, keeping the gold price within the current range.

Due to increased concerns about weak demand and ample supply, oil prices are still experiencing the largest weekly decline in nearly a year, despite OPEC+ postponing the planned production increase.

ANZ Bank said that given the pressure on oil prices in recent months, it is not surprising that OPEC+ has decided to delay the originally planned production increase by two months. Although this reduces the risk of oversupply in the market in the fourth quarter, it is unlikely to completely alleviate concerns about weak demand next year. This may also indicate that OPEC and its allies are still working to comply with the previous production reduction agreement.

Iron ore is still expected to have the biggest weekly decline since March this week, and there are still no clear signs of recovery in the Chinese steel market.