The most important not yet double seasonally-adjusted economic datapoint is upon us: in 90 minutes the BLS will report the May payrolls number which consensus expects to rise by 225K, (range of 140K to 305K), barely unchanged from April's 223K. The meaningless unemployment rate is expected to remain unchanged at 5.4%, even as the number of people not in the labor force likely will rise to a new record high. The most important variable, however, will be the hourly earnings with consensus expecting a 0.2% increase for all workers (the non-supervisory workers category is a different story entirely), up from the 0.1% increase in April.
This is what Wall Street expects from the NFP print, by bank:
- UBS 205K
- Morgan Stanley 210K
- Goldman Sachs 210K
- Credit Suisse 220K
- JP Morgan 225K
- Citigroup 225K
- HSBC 230K
- Deutsche Bank 275K
Yet one wonders if Wall Street isn't overly optimistic as usual. As the following chart from @not_jim_cramer [9]shows, based on recent regional employment surveys, the realistic print is far lower, if not negative.
[10]
Of course, correlation is not causation, but it goes without saying that a negative NFP print would send the ES promptly limit up, crushing the latest batch of 10Y treasury shorts in the process, as it would confirm what many have said, namely that the Fed is now locked into ZIRP and will be unable to raise rate into perpertuity... unless of course the only reason to hike rates is to send the US economy into a tailspin just so the Fed can then launch QE4.
Inversely, if Joe Lavorgna is right with his 275K print, and watch as the bid stack evaporates as even a June rate hike is once again back on the table.
Some more on the possible market reaction courtesy of RanSquawk:
A strong NFP reading coupled with sustained wage growth could see the US yield curve steepen if investors bring forward rate hike expectations. The USD-index may also resume its upward trend in the aftermath of a stellar jobs number, particularly given the recent weakness seen in the greenback. However, should payrolls miss on expectations, then expectations for a September rate hike could be reduced as investors push back the prospect of a Fed rate hike toward December or even next year. Of note, futures markets are currently pricing in a 62% chance of rate hike in December with a 27% chance of an earlier rate hike in September.
