Good morning from Copenhagen,

It’s an exciting day with the release of the U.S. Non-Farm Payroll (NFP) data and the Unemployment rate. NFP is projected to come in at 165k, with estimates ranging from a low of 100k to a high of 208k. Meanwhile, the unemployment rate is expected at 4.2%, with forecasts varying between 4.1% and 4.4%. Notably, only one economist is predicting a lower figure than last month’s print. Based on this week’s employment data, the consensus on the street suggests a figure between 140k and 150k, and based on our interactions with multiple funds and money managers, it seems like markets are positioned for a print in that range.

We anticipate a binary market reaction depending on whether the print is (1) in line with or higher than expectations, or (2) below expectations, and we’ll dive deeper into those scenarios.

The key point is that the market wants confirmation that last month’s disappointing payroll figure was an outlier rather than the start of a downward trend. Any print above 150k would reassure investors that a recession isn’t imminent.

While the ISM Manufacturing employment trends are still somewhat lukewarm (despite increasing from 43 to 46), the services equivalent yesterday showcased decent signs for services employment, and given the fact that 89% of US jobs are within services providing industries, it might be an alright indicator for the future employment trends afterall.

If we look at both the ISM Employment Composite (a weighted average of ISM employment) and the challenger job cuts figures, which has previously been aligned with NFP trends, it looks like today’s number will likely not be an outright catastrophe, and our models point towards a 130-140k reading in line with the views we get from funds and money managers.

Chart 1.a: ISM Employment Composite vs NFP