NFP Preview: Evidence of a tight labor market but benign wage growth – TDS

On Friday, in the US the July official employment report will be released. Analysts at TDS, expect nonfarm payroll to show a gain of 175K .  

Key Quotes:  

“We expect nonfarm payrolls to slow to 175k after two consecutive gains north of 200k.”

“We expect wage data to also reinforce a relatively downbeat report with a benign 0.2% m/m rise in average hourly earnings.”

“We see a high bar for a stronger print as m/m gains north of 0.2% are few and far between for this survey reference week (only three times since 2007). That should keep the y/y pace at 2.7%, reinforcing that wages remain stuck in recent ranges.”

“No rest for the weary after a week of notable central bank shifts, save for the Fed. The payrolls report should garner notable interest from FX markets and if our forecast is correct in expecting a lower outcome on both jobs and wages relative to the market, the USD is vulnerable. We think this will be concentrated in USDJPY where positioning has been skewed to the long side.”

“Given the recent selloff in Treasuries, we believe risks are skewed toward a larger bull steepener in the event of a weaker report. Wages will be the key focus, with a weaker wage print likely allowing Treasuries to rally toward the middle of their recent range. We nevertheless expect any curve steepening to be transitory, with ongoing expectations for Fed rate hikes likely to continue weighing on the curve.”