Jobs reports on both sides of the border next Friday will be the focus of the week, as market watchers try to tease out the future of rate hikes from the employment data.

There are just a couple of data watching days in Canada next week, Wednesday and Friday. On Wednesday, building permits numbers and the Ivey Purchasing managers Index are due out. Friday brings a jobs report, housing starts and the Bank of Canada’s business outlook survey. The Bank may also signal its prevailing policy stance when deputy governor Kennedy makes a speech on Thursday.

Most economists are keying on the employment report. “A rebound in job gains will still leave the more-relevant three month trend looking soft, hinting at a deceleration in growth after an impressive Q2,” says CIBC World Markets.

BMO Nesbitt Burns says that it is looking for only a modest job gain of 10,000 positions, following a sideways pattern for payrolls over the summer. “Job growth is expected to moderate in the year ahead, as Canadian firms continue to adjust to the stronger loonie and also to ebbing U.S. activity,” it says, and the unemployment rate is expected to stay stuck at 7.2%.

RBC Capital Markets says that the jobs report has likely been underestimating the improvement in Canada’s labour market of late, “with most secondary indicators from rising payrolls to falling jobless claims suggesting better labour demand.” It says to expect a rally if less than 5,000 jobs are created, but a selloff if the number is bigger than 25,000.

While the prospects for higher rates on a strong jobs number may hit markets, CIBC sees a hike baked in the cake. “September housing starts might see a bit of a cooling from its red-hot performance. But with the Bank of Canada staying on message, and concerned that rates are too low for an economy with little slack, don’t bet on any of these reports having much sway on the very high odds that markets are pricing in for an October rate hike,” it says. And, RBC says that Bank governor Kennedy’s speech is expected to nearly identical to an earlier one from David Dodge.

BMO Nesbitt says that Friday’s business outlook survey could be a market-mover ahead of the October 19 interest rate decision. RBC agrees that this will contain this week’s most important new information for the monetary policy outlook, though it says markets will probably cling to the more familiar jobs report as the primary driver of trade. “The novelty of the survey suggests likely lesser market reaction than the survey is ‘worth’. While the capacity and inflation expectations questions will guide the reaction most significantly, it will be the overall tone of the report that will govern the market impact,” RBC says.

In the United States, data on factory orders is out Monday, followed by the non-manufacturing ISM on Tuesday and the jobs report on Friday. Federal Reserve chief Alan Greenspan is speaking on Tuesday and Thursday.

The U.S. jobs report will be closely watched. CIBC warns that the uncertain impact of all the hurricanes could screw up the data. “It will be harder than usual for investors to figure out whether the result was better or worse than expected,” it says. “That could mute the response to anything other than a very large surprise.”

BMO Nesbitt is looking for 162,000 new jobs, “and another month of the economy trying to regain traction, along a path now getting greased by $50 oil”. RBC is in the same ballpark, calling for 173,000 new jobs on the headline, possibly revised down to 164,000 to factor in the hurricane effect.

RBC predicts that a number around its estimate will prompt little market reaction, but if more than 200,000 new jobs are reported significant selling pressure could emerge. “Conversely, any print in double rather than triple figures would be very positive for the market,” it says.

This weekend’s G-7 meeting could also make some noise in the markets, although CIBC says that China will resist any demands to speed up the move to a floating currency. “When Beijing does move on that front, it will be in careful baby steps that will hardly cure all of America’s trade ills,” it says.

Finally, the second presidential debate will be held on Friday at Washington University in St. Louis. BMO says that given Senator John Kerry’s apparent victory in the first debate, “The race is tightening again, which means that the remaining debates matter even more.”