NFP Preview: Verizon strike to affect headline - TDS

Analysts from TDS warned about the implication of the strike at Verizon on the headline of the US employment report.

Key Quotes:

“The impact from the Verizon workers’ strike should flatter the headline nonfarm payrolls number lower, with the pace of jobs growth slowing to 145K in May. The risks to this call are fairly balanced. This falloff from the more respectable +160K rise the month before will be due in part to the 35K Verizon workers that would be dropped from payrolls as a result of their ongoing strike action.  This impact, however, will be one-off and a correspondingincrease will occur in the June report following the resolution of the strike action."

“Even so, the underlying tone in this report should reflect some modest deterioration in underlying labor market momentum, with the trend pace of jobs growth continuing to drift lower.”

“There is a common realization that this particular payrolls report will be rather significant in solidifying expectations for a summer hike.”

“ The Verizon strikes complicates the interpretation of this report but even when we incorporate this into our payrolls estimate, we do not think it is substantially low enough relative to consensus to undermine the USD particularly with this expected to be given back at the subsequent report and our expectation for average hourly earnings to be decent.”

“Importantly, we think the market may be a touch hesitant ahead of Yellen’s speech on Monday. If our forecasts are realized, we would look for the USD to be broadly contained, however, the key currency pair we are watching is USDJPY.”

“We think downside in USD/JPY  can be sustained into the 107.50/108.05 range and a breakout below would be the trigger point for broader spillover effects into other crosses we think.”