Markets:
- Gold down $29 to $1948
- WTI crude oil daily +$1.85 to $71.93
- S&P 500 up 62 points to 4289
- US 10-year yields up 8.3 bps to 3.69%
- US 2-year yields up 16 bps to 4.50%
- AUD leads, JPY lags
Non-farm payrolls beat the consensus estimate for an unprecedented 14th time and it beat it in a big way but
Non-farm payrolls beat the consensus estimate for an unprecedented 14th time and it beat it in a big way but the details told a different story and capped the dollar gains, at least initially. The unemployment rate jumped to 3.7% from 3.4%, wage growth was modest and the household survey showed a large drop in employment, particularly self-employment.
Initially, the dollar gave back almost all its gains but a second dollar bid arrived later as yields rose. Front end yields led the rise and my guess is that represents a dwindling possibility of a Fed overtightening error and a higher possibility of a soft landing.
For months now, the bond market hasn’t been concerned about inflation and has instead been pricing rates and growth. With the Fed set to skip a meeting and perhaps pause, there’s less of a chance of a yo-yo in policy where they hike too high and are forced to quickly cut.
Or at least that’s one way of looking at a market that’s been tough to explain over the turn of the month.
Dollar buying accelerated in the final hours of European trading with the euro, pound and yen falling hard.
The commodity currencies kept pace with the US dollar as stocks – and value stocks in particular – jumped.
Again, that could be an indication that markets are pricing in better global growth outcomes and along with that was the earlier report that China was planning some targeted real estate stimulus. Before NFP, the market was hesitant to react to that report. For me, the details (like cutting real estate commissions) are underwhelming but at least they show that Beijing is paying attention to its disappointing economy.
Later in the day, the loonie found some bids alongside oil as some OPEC reports about the possibility of a 1 mbpd cut on Sunday did the rounds. The market reaction in oil was tepid to those headlines and that shows it’s at least partly priced in already.
Have a great weekend.