Sept. 6 (Reuters) - A look at the day ahead in U.S. and

global markets from Mike Dolan

Friday looks set to play out like a concentrated version of

what markets have been navigating all year - what's the fine

balance for the U.S. economy to both dodge recession and allow

interest rates to come down at the same time.

After a torrent of labor market and business updates all

week, the August employment report now acts as the decider,

setting the tone for both this month's Federal Reserve meeting

and the holy grail of a "soft landing" for the economy.

With one exception, advance soundings show a labor market

that's indeed slowing. Private sector payroll growth last month

came in well below forecast, layoffs are rising and vacancies

receding. Only ebbing weekly jobless claims - the most

up-to-the-minute readout - suggest otherwise.

For stock markets, a big rise in the unemployment rate or

swoon in jobs created would inevitably increase fears of

recession ahead, just like it did last month, even though that

would also likely shift the dial towards a 50 basis point (bp)

cut in Fed rates on Sept. 18.

The recent re-emergence of a negative correlation between

stocks and Treasury bonds may well be reinforced, insulating

many mixed asset portfolios, such as 60/40 equity/bond

formulations.

Nerves in advance have S&P500 stock futures down

almost 1% before the bell on Friday as the index heads for its

worst week since April. The "fear index", or VIX volatility

gauge, nudged back above 22.

Rallying treasuries, however, have seen the two-year yield

fall to 3.70% for the first time since May last year.

Ten-year yields also fell, leaving the 2-to-10 year

yield curve on a knife edge and inverted to the tune of just 1

bp.

The dollar slipped back to late August levels.

If the consensus forecast proves correct of course, it will

likely calm the horses.

And for the record, markets expect payroll growth to have

picked up a notch to 160,000 last month and the unemployment

rate to have fallen back a tenth of percentage point to 4.2%.

The jobless rate has been in focus ever since it triggered

the so-called "Sahm rule" last month on the speed at which a

rise in rates suggests recession over the year ahead.

Even though the author of the rule - ex-Fed economist

Claudia Sahm - downplayed the significance of the trigger this

time around, it will remain a red flag unless the rate recedes

in August as expected.

As to Fed thinking, futures now price the chance of a 50 bp

rate cut this month, as opposed to the baked-in quarter-point

point move, as just shy of 50%. But there's a hefty 111 bps of

easing seen to the end of year and 230 bps over the next 12

months.

First to react to the employment report will be two of the

Fed's big hitters - Fed Board Governor Christopher Waller and

New York Fed President John Williams. And then Fed policymakers

head to their traditional blackout period before the next

meeting.

On Thursday, U.S. Treasury Secretary and former Fed chair

Janet Yellen said the U.S. still has a "good healthy labor

market" even if the pace of job creation has slowed.

The Fed has already clearly signalled its intent to start

easing this month and has publicly shifted its focus away from

waning inflation to the state of the jobs market, the second of

its two mandates.

With U.S. crude oil prices back below $70 per barrel

and down more than 20% year-on-year, inflation pressures are

dissipating further.

TECH IN FOCUS

In companies, market anxiety also centres on lofty chipmaker

stocks and news overnight continued to be unsettling on that

score.

Broadcom ( AVGO ) forecast fourth-quarter revenue slightly

below Wall Street expectations on Thursday, hurt by sluggish

spending in its broadband segment. Despite a sharp rise in

orders for its artificial intelligence chips, its shares fell

more than 7% out of hours.

However, Qualcomm ( QCOM ) has explored the possibility of

acquiring portions of Intel's ( INTC ) design business to boost

the company's product portfolio, according to two sources

familiar with the matter.

Next on the horizon for the tech sector is Apple's expected

release of its latest iPhone as soon as next week, a model

expected to include new AI capabilities.

In politics, markets are also bracing for the first

televised debate next Tuesday between U.S. Republican candidate

Donald Trump and his Democratic rival Vice President Kamala

Harris.

Both candidates this week detailed more economic plans, with

Harris indicating a lower capital gains tax proposal than the

current administration and Trump positing a corporate tax rate

as low as 15%.

Around the world, stock markets in Europe and Asia were

generally on the backfoot ahead of the payrolls.

A big mover in Europe was Raiffeisen Bank, which

fell 7% after a Russian court froze the shares of the lender's

Russian unit, which the company had planned to spin off.

Key developments that should provide more direction to U.S.

markets later on Friday:

* US August employment report; Canada August employment report

* Federal Reserve Board Governor Christopher Waller and New York

Fed President John Williams both speak after the payrolls report

(By Mike Dolan, editing by Sharon Singleton

[email protected])