From Deutsche Bank
It’s that time again when financial markets (including ourselves) completely fixate on a number that is often heavily revised as the months progress. However such a crazy fixation keeps us strategists in work so we should rejoice in the madness. The expectation is that US payrolls will come in at 163k today (u/e rate at 7.5%) with DB at 125k (u/e at 7.5%). The most recent estimates have generally been on the lower side, with most forecasts over the last 24 hours coming in at the 130k-150k level. As ever watch out for prior revisions. For example the last payrolls report in early May showed significant upward revisions in February (332k v 268k) and March (138k v 88k). It’s also worth being aware of the seasonals. The chart in today's EMR shows that since 1993, the average and median monthly payroll number has taken a notable turn lower over the summer months (between June and August). Indeed the average final payroll print for June, July and August since 1993 were 81k, 91k and 75k respectively and are meaningfully lower than averages seen throughout the rest of the year. This is perhaps more of a topic for the next 3 months but we also noticed that May payrolls have fallen short of market consensus three years in a row with an average miss of about 30k. We've no way of knowing whether this will repeat but tapering decisions could be made on numbers that could either be heavily revised or seasonally distorted. This adds to the complexity of markets at the moment.
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So what are the scenarios for various potential outcomes? In simple terms we think a number close to or above 200k will intensify the tapering debate over the next few weeks. This is unlikely to be risk positive but there will be some offset from the strengthening of the recovery. However we think the tapering fear will dominate in a risk off trade. A number just above 150k might ease some of these fears but it won't completely eliminate them. A number between 75k and 150k will probably be the sweet spot for markets as the Fed will be pushed slightly off the agenda. Bonds will likely rally taking the risk complex with it. A number below 75k, although unlikely, would definitely reduce taper fears but might worry markets on growth and is unlikely to be as positive as a number between 75-150k. These scenarios are obviously fairly crude and have to be seen in conjunction with the revisions.