US NFP: Risk is asymmetrically tilted to stronger rather than a weaker report - BBH

The research team at BBH explains that the US employment report is the economic highlight and although the non-farm payroll report is notoriously hard to forecast consistently accurate, the inputs like the weekly jobless claims, ADP, withholding taxes, and the ISM all suggest a reasonably strong report.  

Key Quotes

“The median forecast in the Bloomberg survey is +182k.  We suspect the risk is asymmetrically tilted to a stronger rather than a weaker report.”

“Given the three-month decline in the core PCE deflator, and comments by some Fed officials, including Governor Brainard, investors may be particularly sensitive to the average hourly earnings component of the jobs report.  A downside disappointment from the 0.2% expected increase could buoy the bond market and weigh on the dollar.”

“Ahead of the US jobs data, the market has discounted a near certainty that the Fed will raise interest rates on June 14.  The Bloomberg estimate puts the odds just below 93%, and the CME model puts it a little more than 91%.  Our work suggests a fair value for the June Fed Funds contract of a 25 bp hike is about 98.96 (1.04%) while the contract is at 98.9725.”