On Friday, the market was influenced by the publication of data about the American labor market. The results turned out to be mixed. Stock indexes ended the day on a low note, with the Nasdaq Composite losing 1.2%. The EUR/USD exchange rate increased after the publication to 1.0980 but ended the day at a slightly lower level. The yields on American bonds dropped, but they managed to recover part of this movement in the second part of the day. The market had trouble with clear interpretation. This morning, bitcoin price surpassed USD 71 thousand.
Employment in the non-agricultural sector in the U.S. increased by 275,000 people in February, which was more than expected (with consensus at 200,000). However, the January level was revised down by 167,000. Unemployment rate increased from 3.7% to 3.9% (forecasted 3.7%). Average hourly earnings only rose by 0.1% month by month, and the year-to-year index dropped from 4.4% to 4.3%.
Today’s employment report once again shows how important it is not to place too much emphasis on individual monthly data, especially that they often undergo significant adjustments. For example, four weeks ago the employment report for January surprised with a huge increase in new job positions, while the number of hours worked was weak, and wages spiked dramatically. Now, employment growth in December and January has been revised down to 229 and 275 thousand respectively (instead of 333 and 353 thousand), while the number of hours worked was revised upwards in both months and wages downwards. The unemployment rate increase, based on a less reliable private household survey, is equally surprising this time. The changing data may reflect that the response rate in the relevant surveys has significantly fallen, making the results less representative.
The overall picture of the labor market indicates a fairly stable situation. There are no alarm signals, therefore the vision of recession at the moment is improbable. The situation is slightly deteriorating, but this process is moderate and proceeding very slowly. Recently published data on job vacancies (a further slight decrease) and the job resignation rate (return to pre-pandemic levels) also indicate further normalization on the labor market. Therefore, the Fed may wait for more data before initiating the expected interest rate cuts. The central bank has no reason to act faster at the moment, but there is also no argument to push the start of easing monetary conditions far into the future. The market currently prices in about a 65% chance of the first rate cut in June, and there is no reason to assume a different scenario at this time.
Today’s macro calendar is sparse. There are no items describing the state of the American economy. Investors are waiting for Tuesday’s CPI data, which will show how consumer price growth dynamics shaped in February.
By Łukasz Zembik Oanda TMS Brokers
