Another resilient jobs report could be a huge blow for markets and the Fed

Stock markets are tentatively higher at the end of the week but how they ultimately see it out will depend on the US jobs report just before the opening bell.

While the US banking system has probably been the main talking point this week, the two headline events were always the Federal Reserve on Wednesday and the jobs report today and that hasn't changed.

Cracks have been appearing in the economy recently but not yet to the extent that it appears inflation is likely to sustainably return to target. Having gone data-dependent, the Fed is now relying on the numbers to get them off the hook in June and today's jobs data could be a giant leap towards that.

We are expected to see a big shift in the performance of the labour market starting in April, with much lower levels of jobs growth, more jobless claims and higher unemployment. That will create the slack in the labour market that the Fed has been pushing for in order for wage growth to moderate further while hopefully avoiding a recession, something that has been complicated by the fallout in the regional banks.

Markets eye nonfarm payrolls

Markets are now positioned for those cracks to deepen over the next couple of months which will enable the Fed to pause and, while it won't say so at this point, start cutting rates late in the Summer or early Autumn. Another surprisingly strong jobs report today would be a huge blow and could see a shift in expectations for the next meeting, with another hike currently completely priced out.

The good thing is this is one of two jobs reports before then which combined with all of the other data in that time should still provide the Fed plenty of evidence that substantial progress has been made. But it wouldn't be a good start and anxiety could be heightened if the economy shows immense resilience once more.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/