Reminder: US non-farm payrolls will be on the data docket this week
And it doesn’t come any bigger than the US jobs report. To be fair, perhaps the US CPI report will be of more importance. However, don’t underestimate the potential for any surprises in labour market data to upend the market pricing on the Fed outlook.
The headline non-farm payrolls estimate for July is expected at +80k, which will be a step up from the June estimate of +57k. Meanwhile, the unemployment rate is expected at 4.2% and that will be unchanged from June.
So, that will set the baseline in terms of what to expect in terms of labour market developments. For now, the Fed is taking comfort from the fact that they don’t have to worry about jobs running too hot or too cold. And that is allowing policymakers to keep the main focus on the inflation outlook for the most part.
With market players needing to wait until September before the next FOMC meeting, that gives plenty of time to work through and scrutinise US economic data before that. This week’s labour market data will just be the first step in that process.
As things stand, traders are pricing in ~63% odds of a rate hike for September next. By year-end, traders are definitely seeing at least one rate hike by the Fed with ~35 bps priced in currently. And by June next year, there is ~50 bps of rate hikes priced in at the moment.
So, the key in looking at the jobs numbers will be to see how they could or might influence that setting. But unless we get a bizarre set of numbers, it is unlikely to shift the Fed dial all too much.
Credit Agricole is one not expecting any real surprises. The firm is expecting further stability in the labour market in July, which will just reinforce the status quo.
“The jobs data was a bit softer in June compared to the prior few months but remains consistent with stabilisation in the labour market. We expect NFP to firm a bit to +75k in July, up from +57k last month and still a solid pace in the current environment in which the breakeven rate has dropped sharply, even if this would still be below the March through May period. Overall, we see this as consistent with stabilisation but not re-acceleration. Elsewhere in the report, we look for the unemployment rate to hold at 4.2% with average hourly earnings rising 0.3% m/m to result in an unchanged pace of 3.5% y/y."
We’ll be preparing more previews through the week, so stay stuned.
This article was written by Justin Low at investinglive.com.