How Will Markets React To Today's Nonfarm Payrolls?

June 4, 2021 07:30 AM
Blue Line Futures Market Update

Blue Line Futures Market Update

Thursday's Close

E-mini S&P 500 Futures (June): Settled at 4191.25, down 15.00

E-mini Nasdaq-100 Futures (June): Settled at 13,529.25, down 144.50

It’s Jobs Friday and today’s Nonfarm Payroll report for May will prove pivotal. It comes on the heels of April’s disappointment, and those Federal Reserve officials who are more hawkish have again begun talking about tapering bond purchases. 

Analysts expect 650,000 jobs to have been added in May. Yesterday’s private ADP Payroll survey, which printed 978,000, along with weekly Jobless Claim data improving for 5 straight weeks point to a vastly better landscape than it did 1 month ago. April’s disappointment was the byproduct of a labor shortage and of not a stalling economic rebound. 

The data outside of jobs would agree; this week’s ISM Manufacturing and Services reads each topped lofty expectations. However, Employment components lagged, whereas Prices remain elevated. This is the feared divergence: a continued rise in inflation that leaves those hardest hit by the pandemic behind.

This week, we heard from 2 prominent hawks. Dallas Fed President Robert Kaplan is thought to be the most hawkish member of the committee and yesterday he said, from Reuters, “I think it would be wiser sooner rather than later to begin discussions about adjusting our purchases with a view to taking the foot off the accelerator gently, gradually, so we can avoid having to depress the brake down the road.” 

On Wednesday, Philadelphia Fed President Patrick Harker said it “may be time to at least think about tapering bond purchases.” It’s important to understand that neither Kaplan nor Harker will vote until 2023. 

As we’ve discussed before, we believe the Fed is using such to its advantage to probe the market’s resolve in digesting the inevitability of a taper. 2 of the committee’s most prominent members behind Chair Jerome Powell— New York Fed President John Williams and Fed Governor Lael Brainard, also 2 permanent voting seats, each struck a more dovish tone— ultimately reiterating that the economy is far from the committee’s goals.

At the end of the day, the Federal Reserve hasn’t only told us they’ll be behind the curve and reactionary to proof in the data, but they also shifted policy last year to allow for inflation to run hot through Symmetrical Inflation Targeting. If they’re going to be patient on the current rise in inflation and almost certainly wait for proof that it sticks through the end of summer, this absolutely ups the ante on jobs.

We’ll leave you with this: our expectation is for a solid number. However, we believe many expect May’s job growth to rebound strongly. Therefore, although the expectation is for 650,000, the U.S. Dollar and rates may respond in a tame manner to anything under 1 million.

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