Markets will be more sensitive to NFP than the Fed - ABN AMRO

Bill Diviney, Senior Economists at ABN AMRO, points out that markets will be more sensitive to the US employment data due on Friday, more than the Federal Reserve. 

Key Quotes: 

“Markets will be particularly sensitive to incoming data as we approach the next FOMC on 30-31 July, when we expect a 25bp cut. The key question for markets remains whether the Fed will cut 25bp or 50bp, rather than whether they will cut at all; a 25bp cut is fully priced by OIS forwards, while a 50bp cut is 2/3 priced.”

“Tomorrow’s June nonfarm payrolls will therefore attract even more attention than usual, particularly given the May number was a very weak +75k (the Jan-April average was +195k). Consensus expects a +160k print, and our forecast is a little higher at +170k, given the likelihood of some payback for the May weakness. A somewhat weak print (120-150k) would not have a significant market impact, but if we were to see another sub-100k reading, markets would likely take it to mean a higher likelihood of a 50bp rate cut, at least as a kneejerk reaction.”

“For the Fed, we doubt such a figure would be enough by itself to lead to a 50bp cut, and so we suspect such a market reaction would not last (by the same turn, we doubt a strong print would derail cuts).”