Friday’s U.S. non-farm payrolls report is expected to significantly influence markets, as Federal Reserve Chair Jerome Powell emphasized the need to avoid further labor market weakening. Analysts predict 160,000 new jobs and a drop in the unemployment rate to 4.2%. However, recent weaker labor data suggests risks of a softer report, which could increase the likelihood of a 50 basis point (bp) rate cut on September 18. Currently, futures show a 40% chance of such a cut, and a weak report could push that probability higher while lowering bond yields.

A stronger-than-expected payroll outcome would likely eliminate the chance of a 50 bp cut, though a 25 bp reduction appears certain. Market sentiment remains uncertain, with a weak report potentially increasing recession fears. The Japanese yen and oil markets are also closely tied to the report, as weaker U.S. data could boost the yen and further pressure oil prices, particularly Brent crude, which faces its worst week in over a year.