Goldman Sachs predicts that U.S. payrolls will rise by 85,000 in June, which is lower than the expected 113,000. This shortfall is due to weaker data trends, changes in immigration policy, and federal layoffs, which are likely to push up the unemployment rate and slow wage growth. Payroll growth is expected to be 85,000, significantly down from the three-month average of 135,000. Factors contributing to this include the end of Temporary Protected Status for 350,000 Venezuelans, which impacts the workforce by -25,000, and a decline of 15,000 in federal jobs. The unemployment rate is forecasted to increase to 4.3%, up from 4.24% last month. This rise is linked to an increase in broader measures of labor slack. Average hourly earnings are expected to climb by 0.3% from the previous month. However, the wage survey results indicate earnings growth is slowing to less than 3%. The end of recent worker strikes may add 6,000 jobs, but this won’t significantly change overall numbers. Goldman Sachs believes that the June jobs report will show a slowing labor market in the U.S. This could lead the Federal Reserve to adopt a more cautious stance, putting downward pressure on the dollar, especially if wage growth continues to decelerate. In summary, the bank anticipates slower job growth and rising unemployment, driven by concrete factors like reduced federal hiring, changes in immigration, and the end of temporary worker protections. Wage pressures are cooling, with average hourly earnings no longer rising as quickly as they did a few months ago. The expected figures for June indicate a downward trend compared to previous months, suggesting deceleration in various indicators. Looking ahead, these predictions require a reevaluation of strategy. With payrolls expected to fall short of both historical trends and consensus, it’s likely that the labor market is weakening faster than many have anticipated. The projected 4.3% unemployment rate is a real increase, not just a temporary fluctuation, especially as broader measures indicate increasing slack. From our perspective, this data usually strengthens the belief that the central bank will adopt a more lenient approach. This has immediate implications. When policymakers are less likely to raise interest rates, implied volatility typically decreases, making it prudent to reduce exposure to potential upside risks. Declining wage momentum supports this idea— the sub-3% survey suggests that real wage growth is slowing, reducing the need for continued monetary restraint. From a tactical point of view, high short-term interest rate options may lose value if rate expectations lower. This could affect front-end premiums. Additionally, if wage disinflation continues, it aligns with recent declines in real yields, potentially weakening the dollar further. This isn’t speculative; we’ve already seen movement at the lower end of recent ranges. We should also monitor break-evens throughout the week. With a weaker jobs report expected, those heavily invested in cyclical assets might consider cautious downside hedges. However, shorting volatility now carries risks due to potential reactions to policy updates, particularly towards the end of the month. Furthermore, in contracts sensitive to hourly wage data—especially when noting revisions—the skew could steepen again. While the end of labor disputes may add minimal jobs, this won’t prevent the broader trend from continuing. Any rebounds from these effects are likely to be muted. In conclusion, any further softness in employment, coupled with moderating wages, typically leads to reduced forward guidance risk. In this context, it may be more effective to shift strategies toward asymmetric outcomes rather than making directional bets. We believe there’s a greater advantage in betting on the correction of positioning errors later rather than trying to predict immediate moves.

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