Big Jobs Friday spikes volatility with surprising data

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Published Date 2/3/2023

The January unemployment rate expected 3.6% from 3.5% in Dec, declined to 3.4%. Non-farm jobs thought to be up 185K leaped to 517K. Average hourly earnings at 0.3% as expected, Dec earnings revised from 0.3% to 0.4%; year/year earnings +4.4% from Dec revised from 4.6% to 4.9%. Labor participation rate increased from 62.3% to 62.4%. The average work week 34.7 hours, higher than the norm of 34.3 hours. The jobless rate fell to a 53 year low. A huge miss on employment sent the 10 year note from yesterday’s 3.39% to 3.50% and MBS prices on the initial reaction down 45 bps.

The report confirms what the Fed has been worrying about, demand for workers continues to outpace supply, threatening to keep wage growth strong and fan inflation further and the Fed to continue increasing rates. The economy is slowing based on most data recently, but employment and wages continue to hold, Powell has made it clear a number of times recently that he is concerned about high employment fueling wage increases and thwarting the Fed’s drive to get inflation back to 2.0%. To get to the 2.0% goal the Fed has made it clear wages have to moderate and unemployment increase. Prior to the report this morning the markets were “convinced” the Fed would increase the FF rate 25 bps again at the March FOMC meeting, then stop and by mid-year possibly lowering the FF rate, after this report that view is subject.

At 9:30 am the DJIA opened -104, NASDAQ -243, S&P -44. 10 year at 9:30 am 3.50% +10 bps. FNMA 5.5 30 year coupon at 9:30 am -28 bps from yesterday’s close and -41 bps from 9:30 am yesterday.

At 10 am Jan ISM services index, expected at 50.4, as reported 55.2, Dec revised from 49.6 to 49.2. The index back in expansion mode over 50.

Technically, there is solid support for the 10 year note at 3.40%. As long as it stays above 3.40% the near-term outlook remains bearish. The 10 though still trading below its 20 and 40 day averages. The slight consensus within markets still holds the Fed will stop increasing after the March meeting and inflation will decline in the second half of the year.

Source: TBWS

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