It’s a rare non-farm payrolls Thursday with US markets closed for July 4 tomorrow.
I don’t think the headline itself is a big event. The consensus is 110K and the market might be a touch below that after yesterday’s ADP but even a big miss to the downside would be brushed aside after the past three numbers were:
+214K+179K+172K
A miss would be seen as a one-off, though we would surely see some mild USD selling.
A strong reading could also be brushed aside. There’s ample talk of the World Cup adding 40K temporary jobs and that could easily be 60K just given the variance.
The risk I see is more tilted towards a good reading and accelerating wage pressures. Wages are a lagging indicator but jobs growth has been running stronger for awhile and an inflationary mindset is creeping back in. Average hourly earnings are forecast up 0.3% m/m and +3.5% y/y. An upside surprise is likely to see the front-end of the bond market selling off and upward pressure ont he dollar.
Ahead of the report, Fed funds futures are pricing in a 30% chance of a hike in July and 36 bps of hikes before year-end. Yesterday’s comments from Warsh offered nearly nothing but other FOMC members have grown incrementally more hawkish. In the broader ether, the market is also seeing AI increasingly as inflationary during the build-out phase with minimal negative job impacts for years.
On that front, the Fed’s Daly is just out saying that the AI investment shock has people wondering if it will be inflationary.
In terms of FX, USD/JPY is down 100 pips to 161.56 today on a change in tactics from the Ministry of Finance. They’re now looking to do stealth intervention rather than a series of escalating rhetorical comments before making a move.
This article was written by Adam Button at investinglive.com.