NFP Preview: Fed Watching Wages as it Weighs a Potential Rate Cut in June or July

See why the most important number in the jobs report won't be the number of jobs created and what it will mean for Fed policy!

“It would be possible to make another easing move at some point, which would re-center inflation expectations at 2 percent…That might be a great thing to do while the economy is running well.” – St. Louis Fed President James Bullard (2019 voter)

“There is the distinct risk that inflation expectations are too low and will be slow to recover to levels that are consistent with our symmetric 2 percent goal.” – Chicago Fed President Charles Evans (2019 voter)

“If the incoming data were to show a persistent shortfall in inflation below our 2 percent objective…then these are developments that the [Federal Open Market Committee] would take into account in assessing the appropriate stance for monetary policy.” – Fed Vice Chairman Richard Clarida (permanent voter)

When it comes to the current global trading environment, a few things are clear:

  • Traders are hyper focused on the Federal Reserve’s monetary policy stance…
  • … and the Fed is hyper focused on inflation in determining policy, as the above quotes show.

Logically, it follows that any data around inflation will be critically important for global markets. And when it comes to inflation data, one of the best leading indicators is employee wages.

While traders love to watch the month-to-month fluctuations in the aggregate number of jobs created, most of those fluctuations are mere noise. As the chart below shows, the 3-month moving average of US job creation has been remarkably steady in the 150k-250k range since 2015!

Source: BLS,

With that in mind, see the key numbers we’ll be watching in tomorrow’s NFP release below:


NFP Forecast

Last month, we were hamstrung by the late release of the ISM Services PMI report, and while we have all of our leading indicators this time around, they’re painting a profoundly mixed picture:

  • The ADP Employment report was abysmal, falling to just 27k, it’s lowest level since 2010.
  • The ISM Non-Manufacturing Survey employment component rose sharply to 58.1 from 53.7 last month.
  • The ISM Manufacturing Survey employment component rose slightly to 53.7 from 52.4 last month.
  • The 4-week moving average of initial unemployment claims rose slightly to 215k.

With the two most reliable indicators pointing in opposite directions, there’s elevated uncertainty around the release. That said, we lean toward discounting the anomalous ADP report and expecting a solid NFP report given the generally solid data among the other three reliable employment indicators.

NFP Trade Ideas

See possible wage and job creation figures, along with the potential bias for the USD dollar below:

Earnings < 0.1%

Earnings = 0.2%

Earnings > 0.3%

< 150k Jobs

Bearish USD

Slightly Bearish USD

Slightly Bullish USD

150k-200k Jobs

Bearish USD

Neutral USD

Bullish USD

> 200k Jobs

Slightly Bearish USD

Slightly Bullish USD

Strongly Bullish USD

In the event the jobs and the wage data beat expectations, then we would favor looking for short-term bullish setups on the dollar against the likes of the British pound given the ongoing Brexit uncertainty in the UK. But if the jobs data misses expectations, then we would favor looking for bearish setups on the dollar against a currency like the Aussie dollar, as it could serve as a catalyst for more “risk on” sentiment on the theory that the Fed may have to cut interest rates either later this month or (more likely) in July.

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