Big Truth Coming

Macro Markets

The biggest event this week after a low volume 4th of July weekend will be on Friday with non-farm payrolls. The Department of Labor is expected to announce that hiring slowed from 339,000 observed in May to approximately 200,000. There are further employment data this week with Jolts and ADP as well, but non-farm payrolls is the big kahuna. The unemployment rate is forecasted to be unchanged at 3.7%, and average hourly earnings are forecasted to rise by 0.3% and 4.1%.

Employment has continued to break expectations all year, making the Fed's job of curbing inflation extremely hard. It is the most important thing for the Fed at the moment, as employment is running hot if it keeps printing above 200k consistently. When the May payroll report was released, we saw a bumper number again. This time 339k, with April revised up to 294k. It also presents a problem for the Federal Reserve in the context of whether to stick or twist when it comes to more rate hikes in the coming months.

We’ve already seen a pause in June, however, the commitment to raise rates by another 50bps by year-end has got markets a little nervous, driving yields higher at the short end of the yield curve. For June, forecasts are a number below 300k, at 213k. We did see a rise in the unemployment rate from 3.4% to 3.7%, while the participation rate remained steady at 62.6%. Wages also remained steady at 4.3%. We also know that job vacancies, after briefly dipping below 10m in March, rose strongly again in April to 10.1m.

For the Fed to fully pivot, the print needs to come in under 200k consistently, and the unemployment rate must go above 4%.

In terms of the market impact, you want to see consensus as a big drop-down could spook big recession fears, and any massive move-up could spark more hikes. More in the Wizards musing ahead.

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