Markets have started brightly ahead of a key data day in the US, with the bond woes of the start of the week firmly in the rear-view mirror as traders get giddy about interest rate cuts. The FTSE 100 is up a quarter of a per cent this morning, as is the Dax, with shares in Paris in the green but only just. Yesterday in New York saw another solid performance for shares with the S&P and Nasdaq both closing almost 1 per cent higher. Bond yields have fallen back across the board, with the UK 30-year gilt yield back down from its 27-year high, and back at levels seen last week. Gold has ended its seven-day bonanza and levelled out.

So what’s changed? Well, fundamentally nothing, but that’s the fun of trading, I guess. But that’s not entirely fair. We’re now near-guaranteed a cut from the Federal Reserve the week after next, following some poor data on Wednesday that showed job openings slowing. Bad news is good news; how we’ve missed thee. And today, eyes are all on the US non-farm payroll release coming out this afternoon. Expectations are for the data to be positive but not great at 100,000 jobs added, higher than the 73,000 in July. However, what traders will be looking for is any revisions to previous months, which happened at the last reading. Last month saw the largest downward revision in more than five years for the previous two months’ figures.

Fed chair Jerome Powell has indicated interest rate cuts will come this month unless the data gets in the way. Wednesday’s reading didn’t, and it’s likely today’s won’t either, so traders are getting ahead of that with the moves discussed above. However – and this is the big thing to remember – if (and I accept it’s a big if) if the payrolls data shows real strength in the jobs market, all of the past two days could unwind, and it could be a day of chaos before the weekend. You could argue that it would need to be a truly huge shock on the upside to convince traders the Fed rate won’t be cut, but markets are fickle. Earlier this week, some thought the Western debt experiment was on the verge of exploding, and now everything seems fine just because some jobs data was a little weaker than expected. So, prepare for anything.

By Taha Lokhandwala