UMBS are up 6 bps on the open. Stock futures up 7.75
Bonds were just a hair better than unchanged ahead of NFP and initially shot well into weaker territory after reading the top line of the report. After all, 275 vs 200 would be good reason to sell bonds.
But the details of the report were more friendly with revisions to the last month being far lower than today’s “beat.” Wages at 0.1 vs 0.3 is also quite helpful, not to mention another tick up to 3.9 in unemployment.
It’s a bit of a juggling act to decide how to trade it, but the market isn’t straying too far from unchanged at this point.
Nonfarm Payrolls = 275k vs 200k f’cast
last month revised down to 229k from 353k
Unemployment Rate = 3.9 vs 3.7 f’cast [3.7 prev]
Wages = 0.1 vs 0.3 f’cast [0.5 prev] – YoY = 4.3% vs 4.3% est
Participation rate 62.5% vs prior 62.5%
Jerome Powell said yesterday that the Fed is close to cutting rates. “I think we are in the right place,” Powell said of the current stance of monetary policy in a hearing before the Senate Banking Committee. “We are waiting to become more confident that inflation is moving sustainably down to 2%. When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.”
In 1/23, when the labor market was sizzling, Y-o-Y wage growth for those employed during the previous year peaked at 6.4%. Among those who changed jobs it was 7.7%, and among those who didn’t change jobs it was 5.7%. By 1/24 overall Y-o-Y wage growth weakened to 5.5%, for switchers it was down a stunning 1.6 percentage points to 6.1%, but for stayers it fell one-third as much to 5.1%.
It seems weird to consider, but Friday’s trading–and indeed, the week’s trading as a whole–was fairly logical. By the end of the previous week, econ data provided evidence that rates didn’t need to go any higher. This week’s data didn’t exactly confirm that in an overly forceful way, but it absolutely didn’t offer any arguments. Friday’s jobs report was the latest and most interesting example with revisions, unemployment, and wages doing more than enough to offset the higher headline compared to expectations.
After today, the past two months of NFP readings make a lot more sense. It also makes sense that bonds rallied modestly. 200k+ is still strong. Sub 4% unemployment is still low, but it’s next week’s CPI that can truly determine just how quickly we can forget February’s unfriendly data.
UMBS closed out up 6 bps at 101.09
