US: NFP to pick up to a respectable 170k pace in June - TDS

Analysts at TDS expect June nonfarm payroll employment to pick up to a respectable 170k pace in June after registering a disappointing 138k gain in May.

Key Quotes

“At this stage of the cycle we expect gains above 200k to be fewer and far between, though upside surprises cannot be excluded. June is one such month where upside risks could materialize on the back of both robust hard data and surveys. Jobless claims have stabilized near record lows, household sentiment (e.g., Conference Board) has stayed robust, and business survey indicators (regional Fed indexes and ISMs) have also maintained recent strength. The soft ADP print stands alone. At the very least, we expect job gains to remain above the breakeven pace needed for further declines in slack (estimated at roughly 80-120k).”

“The unemployment rate is expected to be unchanged at 4.3%. The number of unemployed workers fell for four consecutive months through May, which at this stage of the cycle looks unsustainable. With some stabilization in June paired alongside ongoing employment growth, we see risks as balanced for a stable reading for the unemployment rate.”

“On wages, calendar effects point to a strong 0.3% m/m increase in average hourly earnings, leaving the year-on-year pace higher at 2.7%. With realized inflation becoming a more deciding factor on the path of future rate hikes, wage growth will be key to watch in the coming months amid heightened questions over the Phillips curve.”

“Foreign Exchange

The wage metric will be the key point of emphasis for FX markets. With the expectation for a solid print—and risk of an upside surprise to headline payrolls as well—the USD should benefit. We think this should largely be felt in USDJPY, where the combined backdrop of rising yields and a technical break above trend resistance augur well for a continued move to the topside.

We view 115 as the next major attractor on the topside with solid supports found in the 112.50/70 area. We also favor a short squeeze in USDCAD where focus has shifted to next week’s BoC meeting that is nearly fully priced. Taken in combination with a soft CAD employment read (released simultaneously with non-farm payrolls) have us eyeing a move back above 1.30 with solid resistance spotted at 1.3050.”