FX168 Financial News (Asia Pacific) News Saxo Bank (Saxo Bank) said that the recent rise in the US unemployment rate triggers the “Sahm Rule” (Sahm Rule), that is, when the unemployment rate rises 50 basis points from the previous 12-month low, which indicates that the economy is in recession. The bank anticipates that if non-agricultural agriculture exceeds expectations in August, the pricing of this year's sharp interest rate cut may be reversed.
The Non-Farm Payroll Report (NFP) has become a key event affecting market expectations of the Federal Reserve's policy interest rate, as risks between the Fed's growth and inflation targets have become more balanced. In May, the market expected to cut interest rates only 2 times this year, but recent signs of weakness in the labor market have pushed expectations to cut interest rates more than 4 times.
As the Federal Reserve closely monitors the labor market for signs of further weakness, Friday's (September 6) non-farm payrolls data is critical to determine the trajectory of future interest rate decisions. As the chart below shows, the unemployment rate has risen to its highest level since October 2021, while employment growth has slowed.
Saxo Bank wrote: “If the non-farm payrolls report late Friday is stronger than expected, employment growth exceeds 0.165 million, and the unemployment rate falls to or below the consensus level of 4.2%, then this is likely to be viewed as negative news for those looking to cut interest rates drastically.”
“The unemployment rate is a key concern because the recent rise has triggered the 'Sam rule', defined as when the unemployment rate rises 50 basis points from the previous 12-month low, which indicates that the economy is in recession,” the bank continued.
“The market currently favors weak expectations in the labor market, which means better-than-expected employment reports may reduce the possibility of sharp interest rate cuts this year.”
On the other hand, if the employment report is disappointing, Saxo Bank indicates that the number of employed people will be far below 0.165 million, or the unemployment rate remains high, and the market may expect a 50 basis point cut in interest rates in September, and a sharp cut in interest rates before the end of the year.
The bank continued to explain: “A weak labor market will reinforce the reasons for further interest rate cuts, which may trigger a rise in bonds. At the same time, as concerns about economic growth intensify, the stock market may continue to sell off, the dollar may be further pressured by rising expectations of the Fed's interest rate cuts, and gold may be supported as investors turn to safe-haven assets to cope with increased economic uncertainty.”
Here's what the bank said about the Non-Farm Agriculture Report:
| Asset classes | Surprise of the rise in non-agricultural agriculture in August | Surprise of the decline in the non-agricultural sector in August |
| stocks | The economic data was better than expected. The economy will not slide into recession for the time being, and the stock market is expected to rebound. | Poor economic data will be interpreted as an increase in the risk of recession and a possible decline in the stock market. |
| Fixed-income assets | The bond yield curve is likely to flatten, and the market is no longer expecting aggressive interest rate cuts. | The bond yield curve is likely to get steeper, and the market will absorb a possible 50 basis point cut in interest rates this month. |
| wares | Energy and industrial metals are rising as bears make up, and the price of gold is likely to fall. | Economic growth-related commodities are facing deeper revisions, and gold will be supported. |
| Forex | The yen may be under pressure, and the market does not expect excessive easing from the Federal Reserve. | The yen strengthened due to increased differences in yield between the Federal Reserve and the Bank of Japan and the inflow of safe-haven funds. |
(Reference source for chart data: Saxo Bank)
