In a market environment where bad news is good news, 528,000 new jobs (vs. 250,000 estimates), 3.5% unemployment rate vs. 3.6% estimate, average hourly wage of 0, 5% vs. 0.3% estimate (and prior month revision to 0.4% vs. 0.3%), average work week 34.6% vs. 34.5%, not exactly a bad news. In fact, that sounds like very good news to me.
The problem with good news is that strong job creation is inflationary. Especially with unemployment at 3.5%.
Inflation is the Fed’s number one enemy, which has been reinforced by all the comments from Fed officials this week.
Although employment is a lagging indicator, it is nevertheless a proxy for inflation because workers are still paid, can therefore spend and are not worried.
The decline in commodity prices seen of late can be seen as an additional stimulus for US workers who benefit more from the destruction of demand outside the US and perhaps some shocks from $5 onwards. gallon, which is now under $4 in most places. The strong (US) could get stronger, thanks to the weak (outside the US) driving prices lower. .
As a result, interest rates have risen.
- The 2-year yield is up 19.1 basis points and 35 basis points this week at 3.238%
- The 10-year yield is up 13.7 basis points today and 17.3 basis points for the week at 2.827%
- The 30-year yield is up 9.8 basis points today and 5.4 basis points for the week at 3.066%
That said, yields are still far from the highs of the year:
- The 2-year high is up at $3.454%
- The 10-year high is at 3.497%
- The 30-year high is 3.493%
Nevertheless, rising yields also helped push the USD higher. Although the greenback ended as the strongest of the majors (see ranking from strongest to weakest below), the upside run seen in the first two hours after the decline could not be sustained and the greenback left the highs.
Slowing the rise, was the stock market rebound. After opening lower with the Nasdaq down around -200 points, a rally ensued, leading to gains in all three indexes at one point. Granted, the gains were all – or most – returned before another rally took the Dow into positive territory at the close, the S&P nearly unchanged, and the Nasdaq (which still benefited from a gain of 2.1% for the week), where it ended. down just 0.5% (at the low, the index was down -1.53%). Snatching victory from the jaws of defeat.
Now markets have yet to break through the CPI next week, with more Fedspeak.
If Fed officials were warning of tougher policy ahead, what will they say next after +528,000?
Moreover, if the markets are not behaving in their eyes (and they can look at the market and say that our fear of inflation is even higher), they can seek to accelerate the sale of bonds, by pushing themselves same rates, taking it out of the scum of the market, balancing the balance sheet and ensuring that the fattened calf does not grow.
They still have this card in hand. Remember that while bad times required the Fed to buy bonds, good times should require bond sales.
There are other chapters of this book that have not yet been written.
Thank you for your support this week. We really appreciate you and have a safe and fun weekend.