Newsflash: Wall Street investors are increasing their bets that the US Federal Reserve will slash US interest rates by half a percentage point at its next meeting, on 17 and 18 September.

CME Group’s FedWatch Tool, which uses pricing data from the futures market to predict interest rates, is now indicating there’s a 51% chance of a 50 basis point cut later this month.

Before today’s non-farm payroll was released, a 50bp cut in September was only a 41% prospect, with a smaller, quarter-point cut seen as more likely.

Those odds have now narrowed to a effective coin-toss, after fewer jobs were created in August than expected – at just 142,000.

Traders are also digesting that June and July’s payrolls were revised lower, accentuating the slowdown in hiring this summer.

However, Fed policymakers will also note that the US jobless rate has dropped back to 4.2% – not a move typically associated with a steep downturn.

[Interest rates are typically adjusted in moves of 25 basis point, or a quarter of one percentage point – but they can be moved by 50bp, or 75bp, or even more if central bankers feel the need to act dramatically].

A cut to US interest rates later this month is “all but guaranteed” after today’s “worse than feared US jobs data”, says Richard Carter, head of fixed interest research at Quilter Cheviot.

But the question remains whether the Fed will take a modest approach, with a quarter-point cut, or make a dramatic half-point cut.

Carter says:

“Today’s US jobs data is expected to determine the size and pace of the highly anticipated Federal Reserve rate cuts, and with the increase in nonfarm payrolls coming in worse than feared at 142,000, we will no doubt see increased speculation that the Fed will take decisive action with a 50bps cut on the 18^th of September.

“Alongside this disappointing August figure, July’s nonfarm payrolls number was also revised down from 114,000 to just 89,000. Meanwhile, the unemployment rate fell slightly to 4.2% following a rise to 4.3% in July, and wage growth came in at 3.8% on an annual basis, up 0.2% compared to 3.6% reported last month.

“Markets have been pricing in significant cuts before year end, with many economists touting more than 1%, and today’s labour market print could exacerbate this further. As was the case last month, this data release has proven notably weaker than had been hoped, suggesting the economy may be weakening more than is consistent with the Fed’s aim of a soft landing.

“When considered alongside signs of softening elsewhere in the economy, today’s worse than expected jobs data will all but guarantee a shift in the Federal Reserve’s stance. The Fed’s decision making is highly data sensitive, and with many datapoints continuously suggesting a slowing economy, it seems inevitable that we will see the first cut confirmed this month.”

The August US labour market report painted something of a mixed picture of the employment situation, says Michael Brown, senior research strategist at brokerage Pepperstone.

Brown explains:

Headline nonfarm payrolls marginally missed expectations, at +142k last month, though such a print was well within the forecast range, even if a 2-month net revision of -86k is hardly anything to be pleased about.

On a more positive note, unemployment fell to 4.2%, as a degree of temporary weather-related weakness in July was unwound, while participation remained unchanged at 62.7%, just shy of cycle highs. Earnings, finally, were a touch hotter than expected, having risen by 0.4% MoM, bringing the annual rate 0.2pp higher to 3.8%.

All of this does little to clear-up the debate over the September Fed meeting, he adds:

Doves will point to a cooling pace of headline payrolls growth as potential reasoning for a larger 50bp cut. Hawks, meanwhile, will reasonably point towards the lack of further cooling compared to the July report, and hot-ish earnings growth, as reasons to kick-off the normalisation cycle with a more modest 25bp move.

My base case remains for the latter, particularly given the risk the Fed run of sparking a market panic were a larger cut to be delivered.

The dollar is weakening against other currencies, after fewer jobs were created in the US last month than expected.

That could be an indication that more investors are expecting a hefty cut to US interest rates when the Fed meets later this month.

The pound has gained half a cent against the dollar, to $1.323 – approaching August’s two-year high.

The euro has risen by 0.2% to $1.1135.

Newsflash: The US economy added fewer jobs than expected last month, but there’s a welcome fall in the jobless rate.

Payroll employment across the US rose by 142,000 in August, the US Bureau of Labor Statistics reports.

That’s a little below expectations for around 160,000 new jobs.

Worryingly, June and July’s non-farm payrolls have been revised down too, to show fewer jobs created than first thought – a sign of softening in the labor market this summer.

The change in total nonfarm payroll employment for June was revised down by 61,000, from +179,000 to +118,000, and the change for July was revised down by 25,000, from +114,000 to +89,000.

In better news, the unemployment rate has dipped to 4.2%, down from July’s 4.3%. That might calm some worries that the US was sliding into recession.

Investors are bracing for the final major economic news of the week – the US non-farm payroll for August.

The jobs report will have a crucial impact on interest rates in the US, with the Federal Reserve expected to lower borrowing costs this month to ward off a recession. A bad jobs report could spur the Fed into a deeper cut to interest rates.

August’s NFP will also give an insight into the heath of the US labor market, with just two months to go until the presidential elections.

After a shock slowdown in hiring in July, economists expect a pick-up in job creation in August. The NFP is forecast to rise by around 160,000 last month, up from July’s 114,000 (which may be revised).

The unemployment rate, which jumped to 4.3% in July, may drop back to 4.2%.

Derren Nathan, head of equity research at Hargreaves Lansdown, says there are nerves in the markets, with European stocks a little lower today.

Nathan adds:

If growth meets or beats forecasts of 160,000 there may be something of a relief rally, but any miss could be punished harshly. To put things in context though, growth is still growth, and a soft-landing doesn’t mean a slowdown can be completely avoided.

European aeroplane manufacturer Airbus has landed a bumper order from a private customer.

Reuters reports that Airbus landed a rare order from a single “private customer” for three A350-900s and three A320neos worth well over $1bn at catalogue prices.

Reuters adds:

Airbus declined to comment but typically uses the “private customer” designation to describe jets bought to be used by VIPs in luxury configurations or by governments. Demand for such aircraft remains strong in the Middle East, analysts say.

Airbus also reported that it booked 46 new orders overall in August, and made 47 deliveries to 31 customers (details here).