PREVIEW: JUNE NONFARM PAYROLLS – 3rd July 2014

US Change in Nonfarm Payrolls (June) M/M Exp. 215K (Low 145K, High 290K), Prev. 217K, April 288K

US Unemployment Rate (June) M/M Exp. 6.3% (Low 6.2%, High 6.4%), Prev. 6.3%, April 6.3%; Labor force

participation rate prev. 62.8%

European Estimates US Estimates

UBS 215K Bank of America 225K

Barclays 250K JP Morgan 220K

Deutsche Bank 225K Citigroup 190K

HSBC 200K Goldman Sachs 210K

Today’s number is not expected to alter the future course of Fed monetary policy

Focus will once again fall on any sign of wage growth as an indication of tightening of slack in the labor force

With Fed policy now on a steady path and their QE program due to end in October or December, even if today’s reading

shows a significant beat or miss on expectation it is not expected to change the course of future FOMC action, although

has the potential to adjust expectation of the rate hike timeline. A significant beat is very possible after yesterday’s ADP

employment change came in at 281K, leading some analysts to change their forecast for today’s reading and speculate over a

potential +300K reading. However, focus will once again fall on any sign of wage growth as an indication of tightening of

slack in the labor force, with analysts suggesting the current 2.1% average hourly earnings remains well below the long-term

trend of 3.5%.

The unemployment rate is expected to remain on hold at 6.3% for the third consecutive time, and follows a note from the BLS last

month that labor force re-entrants partially recovered the big April loss, although participation continues to remain low (62.8%).

Ahead of today’s release it’s worth noting that the 6-month average for the main nonfarm payrolls reading continues to reside

above 200k, with last month’s reading taking the jobs recovery total above pre-recession highs.

Market Reaction

With the S&P 500 and DJIA trading just off record highs, 17,000 will be closely eyed in the DJIA which could be breached at the

Wall Street open following a better than expected jobs report (DJIA future still well below with FV at -82), and the next significant

level in the S&P is at the psychologically important 2,000 (record high currently 1978.58). Although the median expectation for the

headline NFP is 215K, markets are expecting an even higher reading following a big ADP beat of 281k yesterday, particularly as a

higher NFP headline has been seen vs. ADP over the past five consecutive months. As equities have rallied at the start of the new

quarter, USTs have seen selling pressure and the yield curve has steepened, although markets are still pricing in the first Fed

Fund Rate (FFR) hike in July 2015 (34% probability). In currency markets the USD-Index trades back below 80 after a breach

below at the end of last week, and a break back above could mean at test of the 100DMA at 80.04, and also lead to selling

pressure in precious metals.

One key footnote is that the jobs report will be released alongside a slew of economic data including US weekly jobs, trade

balance, and the post-rate decision press conference from ECB President Draghi.

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