Markets ‘overreacting’ to a one-month jobs surge, 50bps cut still alive: StanChart

Investing.com — According to analysts at Standard Chartered (OTC:SCBFF), financial markets are overreacting to September’s strong non-farm payroll (NFP) data, which they view as an anomaly.

The analysts argue that despite the unexpected employment surge, the Federal Reserve remains on course for a total of 75 basis points (bps) in rate cuts across the next two policy meetings, keeping the possibility of a 50bps cut in December “alive.”

“We think markets are giving too much weight to what we think is an isolated indication of labor-market strength,” wrote Standard Chartered.

They believe the September NFP data—featuring a 430,000 employment increase and a 0.17 percentage point drop in the unemployment rate—was skewed by an unusual 785,000 jump in government-sector jobs, nearly doubling the largest September increase since 1949.

The firm predicts weaker job numbers in the fourth quarter, with distortions likely from hurricane activity but still informative once weather-affected states are excluded.

“A soft weather-adjusted October or November release may lead markets to price in another 50bps cut,” the analysts noted.

While markets have shifted expectations toward 44bps of cuts by year-end, Standard Chartered is sticking with its forecast of 75bps in total reductions.

However, the firm now sees a 50bps cut as more likely in December than in November. “We believe the FOMC will treat September as an aberration and proceed with further easing, provided inflation remains stable,” they explained.

The analysts also highlighted that the recent surge in jobless claims, particularly in hurricane-hit states, points to emerging labor-market softening.

They concluded that even without major improvements in economic conditions, the Fed would likely cut rates soon, as it prefers to “move rates sooner rather than later.”