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According to Rabobank analysts, today’s main event is the US Employment Report (14:30 CET and suggests that the April figure and the revised March figure will help in gauging the current strength of the economy.

Key Quotes

“If we look at other labor market data for April that have been released so far, and if we assume that the employment sub-index of the ISM non-manufacturing survey will remain unchanged today, 275K looks like a decent forecast for nonfarm payroll growth. Even if we use an econometric model that excludes the ADP figure (275K), we get a 275K forecast. However, nonfarm payroll growth is a notoriously difficult figure to forecast: the 90% confidence interval is +/-115K. That makes nonfarm payroll growth point forecasting basically a casino.”

“Since PCE inflation continues to undershoot its 2% target, the Fed will be looking at average hourly earnings and the unemployment rate with interest. Despite unemployment at 3.8% in March, well below the Fed’s 4.3% estimate of the NAIRU, average hourly earnings were still 3.2% year-on-year that month. These are wage growth rates that the Fed back in 2015 imagined at the start of the hiking cycle, rather than at the end of the cycle. Note that the Fed’s accelerated pace in 2017-2018 was based on the belief in the Phillips curve, which predicts rising wage and inflation pressures as the unemployment rate declines. So far we have not seen much of it.”