50bp cut is still possible in Dec

After the strong September non-farm data yesterday

, the market's expectations for the Federal Reserve to cut interest rates this year have been significantly reduced. Traders have canceled bets on a 50 basis point rate cut in November, and expect the Fed to cut interest rates by less than 100 basis points in the next four meetings.

But I still think 50bp cut on Nov is still possible.

Because I believes that seasonal adjustments may have exaggerated the September data. Lower quits rather than strong hiring pushed up the employment data. In order to maintain solid job growth and prevent the unemployment rate from rising again, the Fed needs to see an increase in labor demand (hiring).

But there has been a consistent (albeit volatile) trend of weakening demand for U.S. labor over the past year, most evident in the falling hiring rate (which in August was at its highest level since September 2008) and the resulting rise in the unemployment rate.

Meanwhile, September's job gains were led by leisure and hospitality (+78,000) and health services (+72,000). This contrasts with lower hiring rates in these two industries, as well as declines in real restaurant sales in both quarters of this year. Employment in these industries typically declines after the summer.

So I believe we will see a sharper revision in the jobs data and push the Fed to cut rates by 50 basis points in December.