US NFP (Non Farm Payroll) data is being released on 4th April. We expect a significantly lower than market consensus NFP for Mar’25 at 90k against current market consensus of 138k. Lead indicators for the labor market were mixed this month, with a notable divergence between hard and soft data. The employment sub-component of services PMI fell, while the UMich and NY Fed consumer surveys highlighted growing concerns. On the other hand, tax withholding data picked up recently, while jobless claims for the March NFP survey reference week were subdued. A prominent risk factor is April NFP seasonality. Looking at the past market reactions on NFP releases since Covid, we noticed a stronger tendency for rates to sell-off and for the 2s10s curve to flatten on the day of the April release (March NFP) than most other months. But our core view remains that the recent slow down in US consumer spending (both Jan & Feb) implies a material slow down in employment opportunities. Q1CY25 US GDP is now likely at 04-0.6% growth against previous estimated 1%. With the 2nd April reciprocal tariff announcement in view, we believe average US tariffs could go over 10% even with a base-case scenario of mild tariff increases on 2nd April. However, under more aggressive tariff scenarios, we see material risk of a recession. In this case, we would expect the Fed to "look through" tariff-driven inflation and focus on a weakening labor market, as long as inflation expectations were not un-anchoring. If our assumptions are correct, we might see a sharp equity sell off post NFP on 4th April. Fed Chair Powell is also speaking post NFP so that should give us some perspective on payroll vs higher inflation expectation narrative. We remain constructive on 10yr USTs and expect now to see 3.85% levels by end CY25. View stops out if weekly close above 4.45%.
