The US non-farm data for May is coming tonight! How will the Feds interest rate cut prospects play out?

Zhitong Finance APP learned that the US non-farm payrolls report for May will hit on Friday. Investors will use this latest employment data to judge whether the Federal Reserve will ease monetary policy. Economists surveyed by Dow Jones expect that the US non-farm payrolls will increase by 190,000 in May, a slight increase from 175,000 in April. In addition, the market will pay close attention to wage data. Economists expect that the average hourly wage in the United States will increase by 3.9% year-on-year and 0.3% month-on-month in May.

Other employment indicators released this week show that the US labor market has cooled. The number of JOLTs job vacancies in the United States fell to about 8.06 million in April, the lowest level in more than three years, lower than the revised 8.36 million in March and the expectations of all economists. The US ADP, known as the "small non-farm", added 152,000 jobs in May, less than 192,000 in April and the market expectation of 175,000. The number of initial jobless claims in the United States in the week ending June 1 was 229,000, slightly higher than the previous value of 219,000 and the market expectation of 220,000.

"The May U.S. nonfarm payrolls report is now particularly important. A weaker reading (less than 175,000 new nonfarm payrolls and an unemployment rate of 4% or higher) would be the last piece of evidence that the slowdown will continue," Citigroup economist Andrew Hollenhorst said in a note. "On the other hand, an unexpectedly strong jobs report would reinforce the view that the Fed has no need to rush to cut rates, which would push up Treasury yields."

Citigroup expects the U.S. nonfarm payrolls to increase by just 140,000 in May and the unemployment rate to reach 4% for the first time since January 2022. If the data released on Friday is in line with Citigroup's expectations, this could give the Fed an impetus to cut rates earlier than the market expects.

The market currently believes that the Fed will cut interest rates for the first time in September and once more in December. Citigroup's view on the job market outlook is below the market consensus, and its view on rate cuts is also the most divergent from the Wall Street consensus so far. The bank expects the Fed to start cutting interest rates in July and continue to cut interest rates four times before the end of the year.

Goldman Sachs expects the U.S. nonfarm payrolls to increase by 160,000 in May, also below market expectations, as the bank believes that seasonal adjustments have suppressed job growth. On the issue of wages, Goldman Sachs' views are basically consistent with the market, believing that wage increases will remain at a level inconsistent with the Federal Reserve's 2% inflation target.