US markets made a sharp ‘V-shape’ rebound overnight following the release of poorer-than-expected non-manufacturing surveys and PMI reading, which points to a fast deterioration in the most important part of its economy.

The only reason to possibly explain that rebound is the assumption that the Fed will cut rates even faster and restart quantitative easing soon.

This assumption is backed by a weakening of the US dollar against its major G10 peers like the euro, yen and the aussie dollar. The futures market, is now pricing-in an almost 85.3% probability of a Fed cut in its FOMC meeting at the end of October, placing Powell in a difficult position to strike a balance between monetary policy independence and the ‘Fed to save the world’ mission.

Thus tonight’s US non-farm payroll will be crucial to justify the Fed’s next move. Forecast for this month’s non-farm job addition is 145k, higher than previous month’s actual reading of 130k. Still, there seems to be some cracks forming in some parts of the US economy as the moving average of non-farm payroll has been trending down in the last six months. This can be further explained by the difference of its 12-month average reading of 173k and 6-month average of 150k.

This week’s ADP job report suggest that weakness in the employment market mainly came from construction, manufacturing, natural resources and mining sectors, due to weakness in external demand and its own manufacturing sector. The service sector represented by education and healthcare, trade, transportation and utilities, financial services, leisure and hospitality remain the stronger pillars of the world’s largest economy.

Technically, the S&P 500 index has recovered half of Wednesday’s entire losses with a rebound last night. However, this is not yet enough to restore market confidence and signal a full rebound.

The three big data to be released tonight at 20:30 SGT, include non-farm, unemployment rate and trade balance will inevitably trigger heightened volatility in the futures market and perhaps set the tone for trading next week. A far weaker-than-expected non-farm reading will likely weaken the US dollar further, as it suggests both fundamental weakness and more rate cuts ahead. To the equity market, however, it can be viewed as both negative and positive, and thus far more difficult to speculate at the moment.

Non-Farm Payrolls

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.