Morning Commentary: U.S. Jobs Report – Is it a Game Changer?

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

U.S. Jobs Report – Is it a Game Changer? Share this story: Alan Rose Foreign Exchange Senior Trader

A belated Happy Fourth of July to all our loyal readers and to the 243rd Anniversary of the founding of our country!   Today’s U.S. June jobs report has temporarily upended market psychology and positioning as investors were jolted to a much stronger-than-expected U.S. June jobs report. For the past weeks and months, markets have been increasingly pessimistic about the future state of the U.S. economic expansion and have aggressively priced in the need for the Fed to act aggressively to cut interest rates over the next nine months.   U.S. 10-year yields have fallen a dramatic 65 bp since April as a combination of weaker U.S. economic data and the Fed continuing to pivot dovishly has caused yields to plummet. Today’s jobs report came in much stronger than consensus and will have many investors rethinking the need for immediate and aggressive Fed action over the next months.   The June jobs report produced an eye-popping 224,000 jobs against consensus estimates of 160,000. The UR ticked up from 3.6% to 3.7%, but that was offset by the labor participation rate rising from 62.8% to 62.9%. Average hourly earnings rose just 0.2%, keeping the YoY rate at 3.1%. U.S. interest rates across the curve have shot up sharply with 2-year yields up an enormous ~11 bps to ~1.87% and 10-year yields up by ~10 bps to ~2.05%.   The U.S dollar (DXY) is much stronger across the board against both the majors and emerging market currencies as U.S. interest rate differentials have far outpaced the gains of other countries. Commodity prices and gold are much weaker, and European and U.S. equities have all turned to red. One month’s number might not be a game-changer yet, but it will certainly give pause to those that were looking for continued economic weakness as the U.S. job-creating machine marches on. HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: Canada’s June jobs report was mildly disappointing shedding 2,200 jobs against expectations of a gain of nearly 10,000. But today’s job report should be seen against a backdrop of amazing job creation since the beginning of the year where 247,500 jobs were created. The UR ticked higher from 5.4% to 5.5%, and the participation rate remained unchanged at 65.7%. Wage inflation shocked many economists as it rose sharply from 2.6% to 3.6%. Canadian interest rates have mirrored the rise in U.S. interest rates today, but the Canadian dollar is weaker succumbing to U.S. dollar strength.

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