NFP Headline figure smashed expectations; Wages disappoint
The US continues to create jobs at a striking rate, as shown in an exceptional US jobs report for February. The number of jobs created in the US in February completely smashed expectations at 313k compared to 205k forecast. The fact that the unemployment level remained constant at 4.1% despite another sold month of job creation is a little surprising, we would have expected to have seen this tick down.
Wages still fail to pick up
Wages grew at just 0.1% in the three months to February, missing expectations of 0.2%. Meanwhile on a year on year basis wages increased just 2.6%, a shift lower from January’s downwardly revised 2.8%. The wage growth in this report is very low given the extent of tightening that we are seeing in the labour market. With unemployment at the historically low level of 4.1%, in addition to this elevated level of job creation we would expect wage growth to be closer to 3.5%. This shows that there is still more slack in the labour market, more jobs still need to be created before wage growth gets an injection of life.
Despite the slight disappointment in the wage growth numbers, the markets initially focused firmly on the exceptional headline figure, making this a good risk asset report: US stock markets charged higher, treasury yields also gained boosting the dollar.
Risk back on the table
In President Trump’s election campaign, he pledged to create more jobs that any other President and given the 806,000 created over the past year, he certainly appears to be well on his way to achieving this goal.
There is a strong chance that Trump will look back across this week and feel rather pleased with himself: he signed off his steel and aluminium tariffs, February saw astronomical number of jobs created and he agreed to historical talks with North Korea. The Volatility index, or fear gauge is trading lower for the 6th straight session, suggesting the risk on trade is back on the table.
A combination of flows out of safe havens and an impressive NFP saw the USD/JPY pop higher, hitting a peak of 107.5, its highest level since early March. Continued positive sentiment could see the pair push higher to 107.5.
Dollar has delayed reaction to lower wage growth
However, elsewhere in the market we are seeing a delayed reaction to the weaker wage growth. After peaking immediately after the report release, the dollar has actually fallen lower versus a basket of currencies targeting the psychological level 90.00. Market participants are understanding that, despite the eye-catching headline number, this report is not going to forces the Fed’s hand into four rate hikes this year. Instead it will continue to raise questions such as why wages aren’t ticking higher?
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.
Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.