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The economy was expected to have created 180,000 jobs in May, but if the number of employees is much higher or lower than expected, this could be a game-changer for markets and for consumers or businesses. looking for a loan.
Economists believe that the Friday morning employment report could have a profound impact on the markets and help decide when to cut Fed interest rates for the first time in more than 10 countries. years.
"The rhetoric of the Fed has clearly evolved," said Joseph LaVorgna, chief US economist at Natixis. He said Fed Vice President Richard Clarida was the first to spur speculation that the Fed would lower rates when it explained several weeks ago that the fact that the central bank had previously reduced rates preemptively or made an "insurance discount".
Other Fed officials, such as St. Louis Fed President James Bullard, have also made accommodating comments on reducing rates. Then Fed Chairman Jerome Powell said at a Fed conference in Chicago this week that trade was having an uncertain effect on the economy and that the Fed would "act appropriately to support the expansion ".
"What's interesting in the employment report is that it increases the chances of the Fed moving," LaVorgna said.
The May jobs report follows the surprisingly robust 263,000 jobs in April, but other data, such as retail sales and manufacturing data, send mixed messages. Economists also expect hourly wages to rise 0.3% in May and unemployment to remain unchanged at 3.6%, according to Dow Jones.
Big miss ADP raises issues
On Wednesday, the May report on ADP wages, a kind of warm-up law for the government's report, was added with a surprisingly low mass of 27,000 jobs in May. However, this report was perceived as an anomaly and is generally considered to be an inconsistent barometer for the Bureau of Labor Statistics monthly report.
"What makes this report really interesting is the possibility that an ADP-type number could actually make the Fed panic in a rate cut this month," LaVorgna said. "If you look at the federal funds market, you're looking at a 20% reduction in June … The reason is that the bond market knows that, in the best of times, ADP is a very inconsistent predictor of the market. If the number turns out to be much lower than expected, I have to think that the fixed income market would offer a 50/50 chance of a cut in June. "
A number of economists have changed their forecasts last week to adopt two rate cuts this year, after President Donald Trump threatened Thursday to place tariffs on all Mexican products. The economy is already slowing down and more uncertainty could cause a bigger slowdown. In the week that followed, the stock market was volatile in both directions and the bond market moved to take prices in a world where interest rates are lower.
Returns, or interest rates on the Treasury securities market, have declined in line with expectations for the Fed's Fed Reference Fund target rate. Bond yields move in the opposite direction of prices.
The 2-year Treasury bond yielded 1.84% Thursday, although the 2.25% he had reached the end of May. This return closely reflects the Fed's policy. The 10-year benchmark, which is the benchmark rate affecting mortgages and other loans, was 2.10 percent on Thursday, down from 2.40 percent last month.
Michael Gapen, chief economist in the United States, was one of those who expected no rate reduction until now two, the first having been reduced by half a point percentage in September. It is expected that 175,000 jobs will have been added in May and that a much better or worse jobs report will cause turbulence in the bond market and influence Fed discussions.
"It could take a very large number 275,000, or better, to have the front-end [of the bond market] to sell. If the number is less than or equal to 150,000, it would reinforce expectations that the Fed could move as early as July, "said Gapen.
Citigroup's economists have written in a note that "a big surprise for May's jobs in both directions would probably spark a major market reaction, with a surprise down." [less than 100,000] which led the markets to anticipate a further rate cut, but an upward surprise [greater than 200,000] pricing of short-term reductions ".
This week the federal funds futures market was planning more than two 25 basis point rate cuts this year, but economists, for the most part, are not expecting a first before September.
"If it's a bad number, it becomes [the Fed] speak more concretely at the June meeting of what they will do. I think they can always make an insurance cut, even on a good number, "Gapen said.
Prior to the September meeting, the Fed will hold two policy meetings, one from June 18-19 and the other from July 30-31.
Economists have said that if the job report was as strong as expected, the Fed could still lower its rates, but it will look at other data, including inflation.
"Most of the comments I heard from Fed officials during interviews in the corridors around their Chicago meeting focused on the uncertainties of slowing trade policy growth, spending business and low inflation, for a reduction in insurance, it will always be there, "said Gapen.
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