June US payrolls report preview - labour market cooling raises Fed concerns
June payrolls expected to show 110,000 new jobs as labour market cools, with unemployment rising and Fed policy implications mounting.
Job growth expectations signal continued slowdown
The June US payrolls report is expected to show the economy added 110,000 new jobs, marking a notable decline from May's 135,000 figure. Analyst estimates range from 75,000 to 140,000 new positions.
However, the unofficial 'whisper' number circulating among traders suggests around 100,000 jobs, meaning risk is distinctly skewed to the downside. Unemployment is anticipated to rise to 4.3% from 4.2%, while wage growth should remain at 3.9% year-on-year (YoY).
This deceleration represents a continuation of the cooling trend observed throughout 2024, as employers grow increasingly cautious amid economic uncertainty.
Fed policy hinges on payrolls versus inflation dynamics
The Federal Reserve (Fed) faces an unusually complex policy calculus that depends heavily on Friday's employment data. If payrolls contract significantly, the Fed will likely cut rates regardless of tariff effects pushing up consumer prices.
Conversely, if payrolls remain solid while inflation jumps due to tariff impacts, the central bank will probably stay on hold. Between these extremes lies a substantial grey area where tariff effects and labour market outcomes create uncertainty.
In this middle ground, the speed of rate cuts will depend heavily on internal committee dynamics and how Fed officials weigh competing priorities. This complexity makes Friday's payrolls release particularly crucial for market positioning.
US dollar faces significant downside pressure
Should employment data disappoint expectations, markets will likely price in accelerated Fed easing, creating substantial downside pressure for the US dollar.
The dollar's recent performance has been closely tied to Fed policy expectations. Weaker employment figures would likely accelerate the currency's decline against major trading partners, particularly benefiting the euro, British pound, and Japanese yen.
Market implications
Equity markets could see mixed reactions, with growth-sensitive sectors potentially benefiting from increased rate cut expectations.
Technology stocks often perform well when lower rates boost their valuations, while banks could face headwinds from compressed net interest margins. Bond markets would likely rally on disappointing figures, with Treasury yields falling sharply.
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