We expect nonfarm payrolls (NFP) remained elevated at 105k in May against April's no of 115k and current market estimate of 89k. Our forecast would bring the 3m average of NFP growth up to 136k – the strongest since December 2024. Lead indicators have been constructive, continuing to signal an acceleration in employment growth. ADP’s weekly private employment measure remained elevated through April and early May, and continuing jobless claims stabilized close to a multi-year low. 2. The unemployment rate likely remained steady at 4.3%. Measures of hiring and labor demand have shown tentative signs of a rebound, which we expect will lead to a gradual decline in the unemployment rate in H2 2026. 3. Average hourly earnings growth likely rebounded to 0.4% m-o-m. A negative calendar effect and an increase in the average workweek weighed on AHE in April, but underlying wage growth appears elevated, leading us to expect positive payback this month. Service-sector surveys show a pickup in expected wage growth, and the JOLTS quits and hires rates have stabilized in recent quarters. Summary: A report in line with our expectation would likely keep Fed officials focused on inflation risks. We expect the Fed is likely to keep policy on hold in REMCY26, with inflation developments the most-likely catalyst for an eventual resumption of rate cuts or pivot to hikes. From a market perspective, if the report comes in line with our expectations, we expect US bond yields to move higher by 5-6 bps from pre-event levels across the curve. We continue to believe in 2-10 US SOFR steepener as we believe 10yr UST yield has far higher potential to climb up in light of fiscal worries, continued equity traction & sustained selling by foreign investors. Our stop loss on 2-10US SOFR steepener is at 14 level and currently it is at 17. We have a profit target of 40 on this trade. We expect DXY to remain strong post data release.
