Below 150K Jobs And Everything Soars

By Ven ram, Bloomberg markets live Commentator and Analyst

After Thursday’s ADP employment data, expectations from today’s non-farm payrolls print are somewhat muted. However, unless we get a shockingly low number, Treasury traders may look through it.

The median forecast for jobs expansion in May is 320k, a much slower pace of expansion than the 428k we got for April. However, the scatter of expectations is considerable, ranging from 250k to 450k. If the actual print comes in around the upper end of the forecasts, it would be hard to make a case for an emphatic selloff in rates. The markets are already pricing in almost 200 basis points of increases from the Fed in the remainder of the year. Given that the monetary authority has promised to go at 50-basis point increments both this month and next, we are essentially talking about another 100 basis points from the three subsequent meetings, meaning there is already another 50-basis point move lurking in the calculations. So it would be a really unrealistic ask to go beyond that for now.

If the number is shocking low, say, about four standard deviations away from the mean (giving us a print below 150k), we may get a big rally in rates, for the markets would start worrying about whether the economy can hold its poise amid the Fed’s hiking cycle. However tenuous the correlations are between ADP and NFP, yesterday’s lower-than-forecast print on the former should have already made traders scale down their expectations somewhat.

If the actual number today turns out to be in the ballpark forecast by economists (ranging from 220k on the lower side to the median), markets should take the print in their stride without too much of volatility. With inflation running as hot as it is, the Fed only needs sufficient proof that the labor market is resilient — and it’s not looking for another record-high number to stick with its intended tightening. Not with the unemployment rate at 3.6%, a number as good as it’s ever been.