Citi’s Steven Englander looks at some possible ranges of numbers what we could get, and ponders what they might mean for markets:
A big risk is the unemployment rate. Consensus is 7.5%, albeit with a chunk of forecasters at 7.6%. If Citi’s forecast of 7.4% is hit, there will likely be significant pressures on fixed income markets. The Fed has not been explicit enough on what would make 6.5% a threshold, rather than a trigger, so an indication that we are getting there faster than expected will put pressure on fixed income markets and support USD.
On the weak side the we think that payrolls below 140k or 150k may raise questions that tapering will not be so quick, and 7.7% (and to a lesser degree 7.6%) would suggest that labor force re-entry will be a significant factor keeping the unemployment rate from falling too fast. In that respect payrolls at 180k and UR at 7.7% would probably lead to some unwinding of tapering fears.
For markets the worst case scenario would be if Citi’s 7.4% unemployment rate target is hit, but that the job creation comes in on the weak side, in the range of 140K or below.
Then you’re looking at a situation where the unemployment rate is getting closer to the Fed’s target thresholds, and yet you’re still not seeing anything robust growth-wise.