By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – A better-than-expected January US jobs report sparked a bid into the USD, and modest upside for equities, yesterday, though moves proved somewhat fleeting. Today, UK GDP & US jobless claims highlight the docket.
WHERE WE STAND – ‘Jobs Day’ being on a Wednesday is no doubt a rather odd feeling, but at least that feeling was eased slightly by the surprisingly robust nature of the figures.
Headline nonfarm payrolls rose a chunky +130k in January, double the consensus estimate, and enough to drag the 3-month average of job gains to +73k, around double the breakeven rate, despite a net downward revision of -17k to the prior two payrolls prints. Concurrently, average hourly earnings rose by 0.4% MoM/3.7% YoY, a pace that shan’t cause any worries on the inflation front, while unemployment unexpectedly declined to 4.3%, as labour force participation rose to 62.5%.
It is this stabilisation in the unemployment rate that is likely to see the FOMC stick with the ‘wait and see’ approach outlined at the January meeting, and which has further reduced the scope for rate reduction in the short-term. That said, the details of the payrolls report are, again, not quite as rosy as the headline figures may suggest – the healthcare sector added +124k jobs in what looks like a rather spurious seasonal adjustment, while five of the eleven sectors that the BLS tracks actually shed jobs MoM. Once more, the labour market appears somewhat more fragile under the surface than a cursory glance at the data would imply, meaning I remain concerned that the FOMC could well be too sanguine about downside employment risks at this stage.
In any case, markets weren’t too worried about the details of the report yesterday, and digested things with ease, in ‘classic’ risk-on fashion – stocks higher, Treasuries softer led by the front-end, and the dollar finding a bid. All of those moves, however, did prove rather fleeting in nature, as is now so often the case post-payrolls, with the report not causing anywhere near the lasting vol that it used to back in the day.
Having said that, the jobs report does nothing to deter me from my bullish equities view, with the relatively resilient labour market helping to underscore the bull case, and a solid clip of earnings growth doing the same. The NFP print also does little to make me reconsider my bias towards a steeper UST curve, with the data actually feeding rather well into the ‘run it hot’ narrative that the Trump Admin appear to be pursuing.
Speaking of Trump, we had some chatter yesterday that the President may be seeking to quit the USMCA trade deal, which he negotiated in his first term. While this news did cause some knee-jerk weakness in the CAD and the MXN, it looks like little more than a negotiating gambit. Not only does quitting the deal require six months’ notice to be given, but these headlines come ahead of the deal’s renegotiation beginning in June, again strengthening the case that this is, yet again, part of an ‘escalate to de-escalate’ strategy to obtain concessions from the other parties involved in talks.
LOOK AHEAD – The latest UK GDP figures are the first order of business today, with the economy set to have grown 0.2% QoQ in the final three months of last year. That growth, however, will be largely mechanical, with a significant chunk of the expansion stemming from the restart of Jaguar Land Rover production after last September’s cyber-attack.
Elsewhere, today, we receive the weekly US jobless claims data, though neither the initial nor the continuing claims prints pertain to the February nonfarm payrolls survey week. Existing home sales stats are also due Stateside, for January, though shan’t be market-moving.