Previewing Today's Nonfarm Payrolls Number: The Key Things To Look For

Courtesy of RanSquawk, here is a summary of what the Street expects will happen today. Keep in mind, following yesterday's ADP blowout number (always wrong, yet still somehow having credibility), the whisper number is about 30-40K higher. The market consensus is for a +215k NFP report and 6.3% unemployment. In terms of renewed optimism, we've been here many times before in this cycle. As Deutsche Bank's Jim Reid observes, "given the weather distortions it was always inevitable that there would be a Q2 data spurt at some point. But will it be sustainable? The market might not put quite as much weight on data now as they will in say August/September when surely the weather impact will have been completely worked through by then."

Far more important than the headline NFP print will be average hourly earnings (expected to rise just 1.9%, below last month's 2.1%) for those keeping tabs on wage inflation (as opposed to yet again soaring food and energy inflation): recall that as we reported two weeks ago, not only have real hourly earnings declined for two months in a row, but are now back to Lehman levels. Absent some real pick up in wages, the only possible outcome for the US now that cost-push inflation is rearing its ugly head, is nothing short of stagflation.

From RanSquawk

Preview summary:

  • US Change in Nonfarm Payrolls (June) M/M Exp. 215K (Low 145K, High 290K), Prev. 217K, April 288K
  • US Unemployment Rate (June) M/M Exp. 6.3% (Low 6.2%, High 6.4%), Prev. 6.3%, April 6.3%; Labor force participation rate prev. 62.8%
  • Today’s number is not expected to alter the future course of Fed monetary policy
  • Focus will once again fall on any sign of wage growth as an indication of tightening of slack in the labor force

Breakdown by bank:

  • Citigroup 190K
  • HSBC 200K
  • Goldman Sachs 210K
  • UBS 215K
  • JP Morgan 220K
  • Deutsche Bank 225K
  • Bank of America 225K
  • Barclays 250K

With Fed policy now on a steady path and their QE program due to end in October or December, even if today’s reading shows a significant beat or miss on expectation it is not expected to change the course of future FOMC action, although has the potential to adjust expectation of the rate hike timeline. A significant beat is very possible after yesterday’s ADP employment change came in at 281K, leading some analysts to change their forecast for today’s reading and speculate over a potential +300K reading. However, focus will once again fall on any sign of wage growth as an indication of tightening of slack in the labor force, with analysts suggesting the current 2.1% average hourly earnings remains well below the long-term trend of 3.5%.

The unemployment rate is expected to remain on hold at 6.3% for the third consecutive time, and follows a note from the BLS last month that labor force re-entrants partially recovered the big April loss, although participation continues to remain low (62.8%). Ahead of today’s release it’s worth noting that the 6-month average for the main nonfarm payrolls reading continues to reside above 200k, with last month’s reading taking the jobs recovery total above pre-recession highs.

Market Reaction

With the S&P 500 and DJIA trading just off record highs, 17,000 will be closely eyed in the DJIA which could be breached at the Wall Street open following a better than expected jobs report (DJIA future still well below with FV at -82), and the next significant level in the S&P is at the psychologically important 2,000 (record high currently 1978.58). Although the median expectation for the headline NFP is 215K, markets are expecting an even higher reading following a big ADP beat of 281k yesterday, particularly as a higher NFP headline has been seen vs. ADP over the past five consecutive months. As equities have rallied at the start of the new quarter, USTs have seen selling pressure and the yield curve has steepened, although markets are still pricing in the first Fed Fund Rate (FFR) hike in July 2015 (34% probability). In currency markets the USD-Index trades back below 80 after a breach below at the end of last week, and a break back above could mean at test of the 100DMA at 80.04, and also lead to selling pressure in precious metals.

One key footnote is that the jobs report will be released alongside a slew of economic data including US weekly jobs, trade balance, and the post-rate decision press conference from ECB President Draghi.

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