US nonfarm payroll data – scenarios for the Federal Reserve’s FOMC interest rate decision

ABN AMRO look at the implications for the next Federal Open Market Committee interest rate decision (meeting is on 30-31 July). ABN AMRO set the stage for Friday’s data:
  • Markets will be particularly sensitive to incoming data as we approach (the FOMC)
  • 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
  • a 50bp cut is 2/3 priced
The bank expects +175K, which is above consensus (160K), citing
  • the May number was a very weak +75k (the Jan-April average was +195k). 
  • … likelihood of some payback for the May weakness
OK, for Fed implications (bolding mine):
  • June nonfarm payrolls will therefore attract even more attention than usual
  • 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).
Hmmm. I reckon if its a sub 100K ABN AMRO might be surprised at the intensity of the market reaction. It would heighten the 50bp expectation again and see a lower USD in a  thinly trading (post July 4 US holiday) market.
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