Hiring likely slowed further in May – TD Securities

The US official employment report will be released on Friday. Analysts at TD Securities look for a slowdown in payroll in May to 300K, the lowest number since April. They consider the impact on the greenback to be limited. Martet consensus is for an increase of 325K in payrolls.

Key Quotes:

“We look for payrolls to have slowed to a still-solid pace in May, posting their smallest net job gain since April 2021. Indeed, we pencil in an increase of 300k, which is a whisker below consensus expectations at 325k. Despite this loss of momentum, we look for the unemployment rate to decline a tenth to 3.5% in May. We also forecast average hourly earnings to have advanced again at a 0.3% m/m pace.”

“We expect the USD to trade in line with the direction and magnitude of any surprise in the data given its recent correlation flip. We think the m/m AHE (Average Hourly Earnings) will be rather important as well, given concerns about a wage spiral. That said, we think USD moves will be limited with next week’s CPI report but expect EURUSD and USDJPY to be particular sensitive given terminal rate correlations.

“We believe the Treasury market reaction to payrolls is likely to be asymmetric. A weaker report will likely trigger a notable bull steepening after investors recently increased pricing for the terminal Fed funds rate to 3.2% from a low of just 2.9% last week.”


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