Analysts from Standard Chartered on NFP Data Reaction

According to analysts at Standard Chartered, financial markets are overreacting to the strong non-farm payroll (NFP) data from September, which they consider an anomaly.

Despite the unexpected surge in employment, they argue that the Federal Reserve remains on track for a total of 75 basis points (bps) in rate cuts across the upcoming two policy meetings, with a 50bps cut still possible in December.

The analysts wrote, "We think markets are giving too much weight to what we think is an isolated indication of labor-market strength."

They suggest that the September NFP data, which showed a 430,000 increase in employment and a 0.17 percentage point drop in the unemployment rate, was skewed by a significant 785,000 jump in government sector jobs, nearly doubling the largest increase in September since 1949.

The firm predicts weaker job numbers for the fourth quarter, with distortions likely attributable to hurricane activity, but confidence remains once weather-affected states are excluded.

They noted, "A soft weather-adjusted October or November release may lead markets to price in another 50bps cut."

While markets are adjusting expectations toward 44bps of cuts by year-end, Standard Chartered maintains its forecast of 75bps in total reductions. The firm now sees a 50bps cut as more likely in December than in November. They believe the FOMC will interpret September's data as an aberration and continue easing, provided inflation remains stable.

The analysts also pointed out that the recent uptick in jobless claims, especially in hurricane-affected states, indicates a softening labor market. They concluded that even without substantial economic improvements, the Fed is likely to cut rates soon since it prefers to "move rates sooner rather than later."