Too strong
A fresh charge for accelerating Treasury yields from more robust than expected jobs data kept U.S stocks on the run on Friday. The 200,000 headline number for new hires in January was above forecasts by 20,000 and came with a further signal that wages were breaking a spell of stagnation. With the weight from tepid 2017 readings coming out of the equation for the first time this month, the annual growth figure leapt to 2.9%, pacing December’s 2.6% rise.
The thinking is that the Federal Reserve’s plan to raise rates a further three times in 2018 is vindicated by green shoots in personal income growth. And with Treasuries signalling the economy could grow at a faster pace than the Fed has planned for, pay growth that’s finally catching up could force the Fed to hike faster than it foresees.
Revisions
As well as a reassessed December monthly wage growth, a spate of other revisions included payrolls which turned out to have risen by 12,000 more jobs than initially thought, government jobs which fell by a few thousand instead of a similar-sized rise and a dip in weekly hours. Higher than average revisions give the impression that a jobs market close to full employment is beginning to strain official estimations. The cliché that one swallow doesn’t make it spring applies. But for the moment, signals about the missing economic link—inflation—are becoming less and less faint.
Dollar shock for stocks
As marauding Treasuries drag the dollar out of the deepest retreat for three years, in the near term, the most obvious probability is an extension of the week’s bounce from December 2014 lows, looking at the dollar index. That’s bad news for U.S. stock markets. Signs of the greenback’s revival this week suddenly called into question an upward gradient in global profits at large U.S. companies.
Investors have also had an eye on Treasuries after the benchmark yield sliced through multi-month highs culminating in Friday’s four-year peak at 2.854%. That’s nearing a full percentage point up from a low last September. Mixed performances by key U.S. technology companies this week have kept nerves high. Additionally, shareholders continue to run the rule over valuations that remain above long-term averages. So as one of the best-ever Januarys for U.S. equities ends in an upsurge of volatility, the beginning of February threatens to bring edgier conditions than investors have grown accustomed to. That intensifies attention on whether the dollar can sustain this week’s bounce.
Technical chart thoughts: Dollar Index
The Dollar Index basket was up an eighth of a percentage point at the time of writing. From a technical-chart perspective, prices were on course for another try at nearby resistance between 89.55-89.62. DXY has failed three clear times to hurdle the threshold in recent days. In the hourly chart view, oscillators were also suggesting the current recovery leg was losing steam. (See sub-chart: Slow Stochastics)
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