January 10 – It’s all about jobs today, with the monthly jobs report release earlier this morning. Stock futures turned notably lower on this morning’s data release, even as Treasury yields spiked to new highs, with the dollar close in tow. The VIX is trading near 19 at this hour, while the dollar index hit a fresh 26-month high just below 110.0. Yields on 10-year Treasuries also hit a fresh 26-month high of 4.79% following the job number release, while yields on 2-year Treasuries traded to 4.39%. Crude oil prices are more than 4% higher on fears of more sanctions on both Russian and Iranian shipments, while the grain and oilseed sector is mixed to lower, after another dismal weekly export sales report from USDA that will put new perspective on today’s highly anticipated set of January crop reports to be released at Noon Eastern Time.
The economy created 256K jobs in December, exceeding the average analyst expectation by nearly 100K. Furthermore, the November number was revised to 227K jobs created, up from the 212K originally reported, while another 7K were added to the October number. The unemployment rate slipped to 4.1% for December, down from expectations that it would remain unchanged at 4.2%. As such, the unemployment rate has been stagnant within this historically low range of 4.1 – 4.2% for the past seven months. The number of permanent job losers fell by 164K in December to 1.7 million, but that’s not much different than where it was the previous year. The number of people who are on temporary layoff stands at 862K, which is also little changed over the past year. The number of people who have been jobless for 27 weeks or more changed little this month at 1.6 million, but that total is up by 278K from the previous year’s level, and it accounts for 22.4% of the unemployed in December. The labor force participation rate remained unchanged at 62.5% in December, having traded a narrow range of 62.5 to 62.7% over the past 12 months. The data shows that 1.6 million people say that they want a job, and that they are available for work, that they’ve looked for a job at some point over the past year, but they haven’t looked over the past four weeks. Healthcare added 46K jobs in December, while retail added 43K, government added 33K, leisure and hospitality added 43K, and social assistance added 23K jobs, while construction lost 13K jobs.
Average hourly earnings rose 0.3% month-on-month in December, matching expectations, but down from 0.4% the previous month. Average hourly earnings were up 3.9% year-on-year in December, down from expectations that they would remain unchanged at 4.0%. The average hourly workweek remained unchanged at 34.3 hours, as expected. This suggests that wage inflation pressure slipped a bit in December, even with the larger job creation numbers. Yet, the market focused on the fact that the job market heated up with far more jobs created than what was expected, which further reduces odds that we’ll see more cuts from the Federal Reserve. Fed fund futures trading put odds of a January rate cut at just 3% following the release of this morning’s data, with the next rate cut not expected until the June meeting of the Federal Open Market Committee, and that may very well be the only cut this year, according to the market. I’ve been saying that we can’t rule out a rate hike at some point this year, and I believe that is still a possibility moving forward.
Yields on 10-year Treasuries settled near 3.64% on September 17, the day prior to the Fed’s first rate cut in this current cycle. It has cut its benchmark rate by 100 basis points since September 17th but yields on 10-year Treasuries traded 115 points above the September close following the release of this morning’s jobs data. Yields on 2-year Treasuries were trading at a 5-point discount to the 10-year on September 17th, but they traded at more than a 40-point discount this morning. The market is telling us something. It could be that the market is expressing concerns about our nation’s fiscal debt, or possibly lower demand from foreign investors as money returns home, or possibly it is saying that the Fed cuts were not justified. Meanwhile, China’s stock market continues to break sharply lower on fears that officials don’t have an answer for that country’s economic woes, particularly amid expectations of more tariffs from the incoming Trump Administration. Chinese President Xi Jinping does not plant to accept President-Elect Donald Trump’s invitation to attend his inauguration, but he does plan to send some top officials to attend – likely two members of his leadership circle. Xi did indicate that he has had conversations with Trump lately. However, his absence may be an indication that we’re not likely to see tensions between the two countries quickly resolved. This has business expectations set low for China this year, while they are rising in the United States.
USDA releases its largest set of data reports of the year today at Noon Eastern Time. That usually results in some surprises somewhere. Anticipated rains for southern Brazil and much of Argentina have moved back a bit in the forecast, while also being dialed back a bit. I still do not see a major threat unfolding for Brazil, while it’s too early to say for Argentina. Meanwhile, risks for the U.S. Midwest summer are slowly escalating with this pattern.
