Another payroll Friday is upon us and one which would have been a long-awaited event had Brexit not intervened. As Jim reid writes, it’s still important as it was only last month (it seems a lifetime ago) that we saw the shock 38k print relative to 160k expectations. The Verizon strike was an issue but not anywhere near large enough to explain the scale of the miss. Consensus expects 180k jobs added, a sharp rebound from last month’s 38,000 print. Assuming consensus is spot on (and with no revisions) it would the effect of reducing the three-month moving average to 114k from 116k previously. This is significantly lower than the trend over the past couple of years, as nonfarm payroll gains averaged 251k in 2014 and 229k in 2015.
The big question would be whether this means full employment is approaching and higher wages are round the corner or whether it reflects companies scaling down hiring as profit margins get squeezed? At least according to Deutsche Bank the answer is “the latter view given we think we’re late cycle.”
Here is the full breakdown of consensus forecasts:
- US Change in Nonfarm Payrolls (June) M/M Exp. 180K (Low 50K, High 243K, Prey. 38K, April. 160K)
- US Unemployment Rate (June) M/M Exp. 4.8% (Low 4.7%, High 4.9%), Prey. 4.7%, April. 5.0%
- US Average Hourly Earnings (June) M/M Exp. 0.2% (Low 0.1%, High 0.3%), Prey. 0.2%, April. 0.3%
Here is the full forecast by bank:
- BNP Paribas: 130K
- SocGen: 145K
- Deutsche Bank: 155K
- JPMorgan: 160K
- Barclays: 175K
- BofA: 180K
- Morgan Stanley: 180K
- Goldman Sachs: 210K
And some thoughts from RanSquawk:
The latest NFP report expected at 1330BST/0730CDT is under a lot of focus this month given that the previous release came in at a disappointing 38K and at the time took a June Fed hike completely off the table. Thus far, expectations are widely touted that the Fed may not raise rates this year given the uncertainty moving forward after the UK’s decision to leave the EU and whether the jobs market is experiencing a slowdown in the wake of the previous figure. Overall, analysts are expecting the previous releases to be an anomaly amid an improving labour market with Fed officials also operating on this basis as they look to confirm it tomorrow.
Current expectations stand at 180K which is significantly above the previous result of 38K due to expectations of a recovery. Given the last result had such aggressive ramifications across the majority of asset classes, analysts have highlighted that any large revisions to the previous figure are likely to come under scrutiny. Furthermore, last month did show that unemployment fell to 4.7%, however, much of this was linked to unemployed individuals leaving the workforce rather than finding new jobs and as such, analysts have highlighted that this could see a correction this time around. In terms of wages, Fed Chair Yellen recently said that there are some tentative signs that wage growth may finally be picking up, as such, participants will be keen to ensure that as a secondary metric, wage growth, is continuing to improve.
In terms of the recent data releases out of the US, Wednesday’s ISM non-manufacturing employment gauge came in at 52.7 vs. Prey. 49.7 which is promising for the jobs sector while looking further back at the personal income and spending releases, they were broadly in-line with expectations. More recently Thursday’s ADP release beat expectations at 172K vs. Exp. 160K with a downward revision of 5K to the previous.
Market Reaction
As ever with the NFP release, the headline is likely to garner much of the initial focus with algorithms and fast money moves jumping on any large discrepancies. Participants are likely to view the jobs report in a wider context and are to be aware of any possible revision to last month’s disappointing figure and if no substantial revision is seen will look to ensure that the previous release was nothing more than an anomaly. Therefore, all metrics will be considered upon the release, yet the largest moves could be seen if the headline continues to disappoint as this could trigger expectations from investors regarding the US outlook to move significantly to the downside.
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Finally, BofA’s kneejerk reaction guide:
- Payroll risk is strong payroll (>225k) which causes relative outperformance of banks at the expense of bonds & quality stocks; strong US labor market & consumer data (note that US mortgage refi activity has been slowly creeping higher) that raises Fed hike expectations from the dead would lead to a short-term unwind of some very extended pair-trades across the world.
- In contrast, a weak payroll (<125k) removes “terra firma” of US expansion, would in absolute terms be best for gold & volatility, and would ultimately cause further barbell outperformance.
via http://ift.tt/29FYNw2 Tyler Durden