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Every non-farm payroll report tends to get handed the moniker ‘the most important NFP day since [x]’, but perhaps this time around the release deserves top billing. The latest set of Federal Reserve minutes confirmed that a caucus on the Federal Open Market Committee (FOMC) is increasingly in favour of raising interest rates once again.
Tomorrow’s non-farm payrolls are expected to see 160,000 jobs added, down from last month’s 170,000, while the unemployment rate is forecast to drop to 4.9%. Average hourly earnings, so long the missing piece of the puzzle, are expected to rise by 0.2%, down from the April figure of 0.3%.
For the Fed to really move towards a June hike (even if only 25 basis points), we would need to see much stronger job creation figures, and a healthy rise in wages. If the figure only squeaks in at expectations, or indeed is weaker than forecast, then we can expect to see the markets' rate hike expectations, currently 22% for June and 52% for July, unwound significantly (recall the forecast hit 32% following the release of the May minutes).
Although it has held up well, we can see that bullish momentum in the US dollar index has faded over the past two weeks or so. The close back inside the descending channel seen on 1 June raises the prospect of more losses for the index, which would give indices a breathing space. Any stronger number would spell the beginning of a fresh move higher for the greenback, with baleful implications for equities and key risk currencies such as the Aussie.
Tomorrow’s job number is unlikely to be the ‘go/no go’ signal the Fed is waiting for, but it will certainly rate highly in importance on the FOMC’s list of ‘data to watch’.