For the US Department of Labor, tonight's May non farm payroll report may be enough to create a new milestone, but for the vast stock and bond market investors in the market, they may prefer that such a milestone not occur!
Statistics show that the May non farm payroll report may consolidate a trend that the United States has not seen since the early 1950s:
If the unemployment rate meets expectations (3.9%), it will be the 28th consecutive month that the US unemployment rate has been below 4%. In over 70 years of American history, there has never been such a long period of low unemployment.
However, given the increasing signs in recent times that the "bad news" of US economic data is more like the "good news" of financial markets - because this can better stimulate people's expectations of early interest rate cuts by the Federal Reserve, more market participants tonight may actually hope to see: non farm data not so good, unemployment rates can be even higher
So, will this scene appear in a few hours? Let's wait and see together
What are the expectations for the non-agricultural market in May?
The US Bureau of Labor Statistics will release its May non farm payroll report tonight at 20:30 Beijing time. According to the median expectations compiled by industry media, it is expected that the number of non farm payroll workers will increase by 185000 in May, and the unemployment rate will remain unchanged from the previous month at 3.9%. In April, the US job market added 175000 jobs, significantly lower than expected, while the unemployment rate unexpectedly rose to 3.9%.
The following is the latest median forecast from Wall Street for non farm main indicators and key sub indicators compared to last month:
The non farm employment population in the United States is expected to increase by 185000 after the May quarter adjustment, compared to the previous value of 175000;
The unemployment rate in the United States is expected to be 3.9% in May, compared to the previous value of 3.9%;
The employment participation rate in the United States is expected to be 62.7% in May, compared to the previous value of 62.7%;
The average weekly working hours in the United States in May were 34.3 hours, compared to the previous value of 34.3 hours;
The average hourly wage in the United States in May is expected to increase by 3.90% year-on-year, compared to the previous value of 3.90%;
The average hourly wage in the United States is expected to increase by 0.30% month on month in May, compared to the previous value of 0.20%.
As the non farm payroll report is about to be released tonight, US equity hit a historic high earlier this week amidst a series of weaker than expected economic data, which boosted investor confidence in the possibility of the Federal Reserve cutting interest rates in September. According to the FedWatch tool of the Chicago Mercantile Exchange, as of Friday, the market expects a probability of approximately 69% for the Federal Reserve to cut interest rates in September, significantly higher than less than 50% a week ago.
In fact, with the sluggish performance of this week's series of non farm forward indicators, many industry insiders now even believe that there is a possibility of significantly lower than expected non farm data tonight. A trader stated on Wednesday that the so-called "whispering numbers", which are privately predicted by the public, will only increase by about 120000 non farm workers in May.
Guy LeBas, Chief Fixed Income Strategist at Janney Montgomery Scott, said that economists' forecasts are also very inconsistent, with some forecasts ranging from 110000 to 130000, which seems to be a more likely "landing point" after a slightly weak series of employment data on Monday this week.
According to Bloomberg Terminal's current statistics on major Wall Street investment banks, the prediction range for tonight's non farm main indicators is roughly between 120000 to 258000 people.
Major institutions have relatively more concentrated forecasts for the unemployment rate, with a general expectation of maintaining it at 3.9%. However, a few investment banks, such as Citigroup, are relatively pessimistic - believing that the unemployment rate may rise to 4.0%, which will also break the record of sustained low unemployment mentioned at the beginning.
Analysts from ANZ Bank pointed out that traders expect tonight's non farm payroll report to be weak, and if employment growth falls below the median forecast of 185000 by economists, it may prompt the Federal Reserve to cut interest rates twice this year. However, Joseph Capurso, an international economic analyst at Commonwealth Bank of Australia, stated in a client report, "We expect the overall message conveyed by the non-farm payroll report to remain strong, although the strength is weakening."
In addition, Goldman Sachs predicts that the US non-farm payroll will increase by 160000 in May, slightly lower than market expectations. Strategists at the bank believe that seasonal adjustments will suppress employment growth.
Previously, the "small non farm" data released by the American Automated Data Processing Corporation (ADP) on Wednesday showed that private sector employment in the United States increased by 152000 in May, the smallest increase since February, significantly lower than the market's previous estimate of 173000. In April, the data was revised down from 192000 to 188000.
Wall Street Inventory Tonight's Nine Types of Endings
For foreign exchange, gold, US bonds, and US stock investors, tonight will undoubtedly focus on the specific performance of non-agricultural data to grasp the next steps of the market.
Citigroup economist Andrew Hollenhurst stated in a report that Friday's US May non farm payroll report is particularly important. Weak data, such as the addition of less than 175000 non farm workers and an unemployment rate of 4% or higher, will be another example of the sustained economic slowdown. On the other hand, if the employment data is unexpectedly stronger, it will strengthen the view that the Federal Reserve does not need to cut interest rates in a hurry, which will push up the yield of US treasury bond bonds.
As shown in the figure below, last month, the significantly lower than expected non farm data at the beginning of the month greatly boosted the trend of gold prices on non farm nights.
Of course, for investors, evaluating the specific impact of non-agricultural data on the financial market is obviously not just about paying attention to the main indicators of non-agricultural employment changes. Similar to sub indicators such as salary data, they may also affect the direction of the market on that day.
Forex.com strategist Matt Weller evaluated the impact of different non farm employment and hourly wage data on the US dollar index on Thursday, using the trend of the foreign exchange market as an example.
In the US stock market, JPMorgan Chase also listed nine scenario predictions based on these two variables:
Scenario 1: Both non farm employment and hourly wage growth are strong
In this scenario, bond yields will be most affected, while dispelling expectations for a rate cut in September. The S&P 500 index may fall by 0.5% to 1.25%.
Scenario 2: Strong non-agricultural employment and expected hourly wage growth
In this context, concerns about stagflation will be alleviated, while reviving the soft landing rhetoric and potentially transforming it into a demand for "blonde girls" for employment. The S&P 500 index may rise by 0.5% to 1%.
Scenario 3: Strong non-agricultural employment+weaker than expected hourly wage growth
In this context, it is still considered a positive result, but the upward potential of the market is not significant as it may mean an increase in a large number of part-time or low-income job positions. The S&P 500 index may rise by 0.25% to 0.75%.
Scenario 4: Non farm employment meets expectations+strong hourly wage growth
In this context, the labor market remains tense and may accelerate, while inflation will continue to exist. The S&P 500 index may fall 1% to 1.5%.
Scenario 5: Both non farm employment and hourly wage growth meet expectations
In this context, we may see support for risky assets as the economy is normalizing rather than deteriorating. The S&P 500 index may fluctuate between flat and up 0.5%.
Scenario 6: Non farm employment meets expectations+hourly wage growth is weaker than expected
In this context, it is still considered a "slightly positive result", and investors are expected to breathe a sigh of relief, ultimately increasing the possibility of a rate cut in September, with the S&P 500 index possibly rising by 0.5% to 1%.
Scenario 7: Non farm employment below expectations+strong hourly wage growth
In this context, market bulls may face the worst outcome, which will confirm the "script" of stagflation, similar to the situation in early April. The S&P 500 index may fall by 1.25% to 2%.
Scenario 8: Non farm employment below expectations+hourly wage growth in line with expectations
In this scenario, bonds will be favored and stock investors will return to large technology stocks, but the market is expected to fluctuate widely and the S&P 500 index may still fall by 0.5%.
Scenario 9: Both non farm employment and hourly wage growth are lower than expected
In this context, people's concerns about economic recession will intensify, and the possibility of interest rate cuts will also exist. US Treasury bonds are expected to benefit, while the performance of the S&P 500 index is expected to be between 0.25% up or down.