Volatility spikes on surprising Jobs report

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Published Date 2/2/2024

January employment data at 8:30 am ET was quite a shock, job growth much stronger than what had been expected. The unemployment rate thought to have increased to 3.8% from 3.7% in December, the rate at 3.7%. Non-farm payrolls expected +170K increased 335K and December jobs revived from 216K to 333K. January private jobs expected +142K increased 317K and December revised from 164K to 278K. Manufacturing jobs expected +5K increased 23K. Average hourly earnings month/month in January thought to be +0.3% increased 0.6% and up from +0.4% in December; year/year forecasts +4.1% increased 4.5%. Curiously, the labor participation rate at 62.5% was unchanged from December. The immediate reaction sent the 10 year note up 10 bps, the 2 year note +16 bps: MBS prices down 25 bps. The employment reports each month normally has some deviations from estimates but this one takes the cake. Take December and January together, NFP jobs +686K, private jobs +595K.

What would the FOMC and Powell have said had the Fed known this data? The Fed got this data yesterday afternoon. Powell and the FOMC statement would be much different, Powell signaled no more rate increases and rate cuts likely later this year. He made it clear there would be no changes in rates at the March meeting, continued to stress the Fed is all in about lowering inflation. The data this morning could be ignored as an anomaly, but it becomes difficult to do so with the December upward revisions. Not just job growth but earnings were much stronger, month/month earnings thought to be +0.3% increased 0.6%, year/year +4.5% from 4.1% in December. It is unlikely the FOMC and Powell would have pushed a rate increase, and it is still likely the FOMC meeting in March won’t see an increase.

At 9:30 am the DJIA opened -67, NASDAQ +34, S&P +9. 10 year 4.00% +11 bps. FNMA 6.0 30 year coupon at 9:30 am +39 bps from yesterday’s close and -33 bps from 9:30 am yesterday.

At 10 am the University of Michigan/Wells Fargo consumer sentiment data, the index expected unchanged from mid-month at 78.8 increased to 79.0. Consumers remain strong.

December factory orders expected +0.4% increased 0.2%, November +2.6%.

Technically, yesterday the low yield for the 10 year 3.81%, closing at 3.89%. 3.80% was the low in late December before the rate increased to 4.20%, short term traders will focus on it. Even with the increase today, so far the 10 year note is trading below its 20, 200 and 200 day averages.

Source: TBWS

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