Today, in a welcome development, the key market event has nothing to do with constant Greek news, headlines, and rumors and everything to do with the BLS' seasonally adjusted (indicatvely the average seasonal adjustment for June over the past decade is just over -1 million "jobs" from the actual to the reported data) nonfarm payrolls data.
While we showed what the all important Goldman jobs preview looks like [11], here is a quick snapshot of what consensus expects will be reported in 15 minutes:
- US Change in Nonfarm Payrolls (Jun) M/M Exp. 233K (Low 160K, High 290K), Prev. 280K, Apr. 221K
- US Unemployment Rate (Jun) M/M Exp. 5.4% (Low 5.3%, High 5.5%), Prev. 5.5%, Apr. 5.4%
- US Average Hourly Earnings (Jun) M/M Exp. 0.2% (Low 0.1%, High 0.3%), Prev. 0.3%, Apr. 0.1%
Here is the breakdown by bank:
- Morgan Stanley 215K
- Goldman Sachs 220K
- Citigroup 225K
- Deutsche Bank 225K
- JP Morgan 225K
- UBS 230K
- Credit Suisse 240K
- HSBC 240K
As RanSquawk reminds us, June’s nonfarm payrolls report presents another important juncture on the road to Fed rate lift-off with policymakers looking to raise rates at least once this year. The trend of strong jobs growth is expected to continue with a consensus forecast of 233K while the unemployment rate is projected to decline further to 5.4% due to the increasing participation rate. Analysts are still undecided whether the improvement in participation is due to cyclical or structural reasons although a further rise in the measure could signal a greater degree of labour slack. Market attention may also remain on wage inflation given the focus on earnings growth as the US economy approaches full employment.
In terms of recent labour data the pattern has been encouraging with weekly continuing claims residing at multi-year lows, the employment component of June’s ISM manufacturing report at its year-to-date high, and ADP coming in at 237k vs Exp.
218k.
The latest FOMC projections indicate that a potential rate hike could come as soon as September with several Fed officials referencing the date in recent speeches. Although a possible interest rate increase is more than two months away, June’s NFP
data will form a reliable indicator as to the long-term trajectory of the labour market and monetary policy expectations. As such, a surprisingly strong report could evoke a more pronounced reaction given that market projections of rate increases still significantly undershoot the Fed’s own forecasts.
Market Reaction
A strong NFP reading coupled with sustained wage growth could see the US yield curve steepen as investors bring forward rate hike expectations. The USD-index may also resume its upward trend in the aftermath of a stellar jobs number, or at least in the short-term ahead of a long holiday weekend in the US with the Greece referendum on Sunday also presenting increased risk.
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 further into Q1 2016. Of note, futures markets are currently pricing in a 57% chance of rate hike in December with a 14% chance of an earlier rate hike in September.