A 50 basis point probability increase to 35%, waiting for tonight's non-farm "slap in the face"?

This week, the U.S. released soft signals in employment data: the July JOLTS job vacancies unexpectedly weakened to the lowest level since early 2021 on Wednesday, the August ADP new employment unexpectedly dropped to the lowest level in three and a half years overnight, and the latest initial jobless claims data also fell short of expectations.This has reignited expectations for a 50 basis point rate cut. Currently, the pricing in the interest rate swap market shows that the probability of the Fed significantly cutting rates in September is about 35%, with banks like Citigroup and JP Morgan betting on a 50 basis point rate cut.Matthew Raskin, head of U.S. interest rate research at Deutsche Bank, stated that uncertainty will end with the release of the August nonfarm payrolls report tonight:"If the market's implied expectations decisively shift towards one outcome or another, then betting on a 25 basis point move will mean: win a little or lose a lot. Betting on 50 basis points will be the opposite."Wall Street Expectations: Rebound in August Nonfarm Payrolls, Decline in Unemployment RateCurrently, the median of Bloomberg economists' survey shows that the number of nonfarm payrolls in August is expected to increase significantly from 114,000 in the previous month to 165,000, and the unemployment rate is expected to decrease slightly from 4.3% to 4.2%, indicating a moderate recovery in the labor market, thereby dampening expectations of a 50 basis point rate cut.Bank of America economists Shruti Mishra and Aditya Bhave stated in a report:"The labor market slowdown is gradual, and overall, we expect some relief in the August report compared to the unusually weak July report."Some media opinions point out that the optimism about the August nonfarm payrolls report is largely based on the fact that the significant increase in the July unemployment rate was largely driven by a 30.6% surge in the number of workers temporarily laid off, a phenomenon that has only occurred 6 times in the 57-year history of the data and is expected to reverse in August.Bloomberg economist Anna Wong also stated that the turning point in the rise of the unemployment rate has arrived:"In the past few months, the labor market has cooled rapidly - we believe that the turning point of continuous rise in the unemployment rate has passed, and the Fed and the market have not realized this yet."Citigroup stated that if the U.S. unemployment rate drops from 4.3% to 4.2% in August, the Fed may only cut rates by 25 basis points, "unless wage growth also weakens."Interest Rate Swap Market May Face TremorsIt is worth noting that the day after the release of the August nonfarm payrolls report, the Fed will enter its routine blackout period.Deutsche Bank analysis pointed out that over the past 15 years, the difference between the implied interest rate expectations from swap contract prices at the start of the Fed blackout period and the final rate decision was only 3 basis points.Therefore, if the nonfarm data clearly indicates that the Fed will cut rates by 25 or 50 basis points, given that the current market is digesting a 34 basis point rate cut, the implied rate cut from swap prices may narrow to 28 basis points or expand to 47 basis points, leading to significant market volatility.RJ O'Brien derivatives broker Alex Manzara expects a volatility of around 17 basis points in the two-year U.S. Treasury futures options pricing yield level on FridayRaskin also added that if the non-farm data fails to lock in a decrease of 25 or 50 basis points, the August CPI to be released on September 11th can still provide guidance