Strong payroll data doesn’t deter equity bulls with Nasdaq up and Russell 2000 down

 Today’s payroll data reiterated the run of strong labor market data with wages growing at 4% a key concern for the Fed. Futures markets reduced the probability of early rate cuts, but traders made few changes to their bullish stance on equities, bonds, gold or the dollar.

TODAY’S MAJOR NEWS

Jobs data shocks Wall Street (again)

Strong labor market data reported this week in various surveys was reinforced by todays shockingly strong Non Farm Payroll data. Market expectations for interest rate cuts judge the probability of a quarter point cut by March fell from 75% to 55%. Shelter and wage growth have been a couple of areas where inflation stickiness has been a problem for the Federal Reserve. We’ve recently seen data from the housing sector suggesting that inflation will remain a problem in that sector, as lower mortgage rates invite a resurgence of interest in the housing market, while rents continue to rise as well.

Wages growth still too strong

Today’s data adds hawkish fodder for the wage sector as well, with wages still not coming down enough to relieve worries that they will keep overall inflation at the 2% mandated target. There are certainly signs that monetary policy over the past 21 months is slowing growth, but these two areas remain a concern, fitting with concerns expressed in the minutes of the December meeting of the Federal Reserve that rates may need to stay high – or even tick a bit higher in the future – in order to deal with these lingering areas of inflationary pressures.

Payroll data

• Payrolls increased by 216,00 in December, compared to an expected 175,000 and 173,000 last month (revised down from 199,000.) Government and healthcare hiring jumped sharply, adding 52,000 and 38,000 jobs respectively
• Private payrolls added 164,000 jobs in December, up from analyst expectations of 127,00 jobs, while the November data was revised to 136,00 jobs created, down from the 150,00 originally reported
• The unemployment rate held at 3.7%, compared to an expected 3.8%, and 3.7% last month
• Average hourly earnings were up 0.4% month-and-month and 3.9% year-on-year, versus expectations for 0.3% and 3.9%, respectively, and 0.4% month-and-month and 4.0% last month
• The jobs participation rate fell to 62.5%, down from 62.8% in November
• The number of long-term unemployed (jobless for 27 weeks or longer) stands at 1.2 million people, which is little changed over the past year, and the survey revealed that 5.7 million people responded that they want a job and are unable to find one, but also admitted that they had not looked for a job over the past four weeks

Shipping costs rise, posing inflation risk

Spot rates for container shipping are surging as threats in the Red Sea reduce capacity. This will begin to have knock-on effects on the price and availability of goods. The cost to move container boxes to northern Europe from Asia has jumped 173% since mid-December, while prices to the Mediterranean are set to rise above $6,000 from mid-January, according to the Freightos research. Suez Canal traffic is down 28% over 10 days, according to IMF PortWatch.

TODAY’S MAJOR MARKETS

Equities unconcerned by strong jobs data

• Nasdaq and the S&P 500 rose 0.%6 despite strong jobs data which would typically have been as negative, the Dow was up 0.4% and the Russell 2000 continued its New Year slump off 0.4% in opening trade
• The Nikkei 225 rallied 0.3% as investors continued to anticipate interest rate increases, while the FTSE 100 and Dax were off 0.6% and 0.3%, respectively
• The VIX, Wall Street’s fear index, fell modestly to 13.6

Bonds sell off, dollar weakness

• Bonds were weaker at the open, with 10-year TIPS index-linked yields up to 1.81%, and 2- and 10-year yields at 4.43% and 4.04%, respectively, suggesting that fixed income markets are starting to price less and later interest rate reductions
• The dollar index fell 0.4% to 102.1
• Versus the Dollar, the Yen was up 0.3%, the Euro was up 0.4%, and Sterling was up 0.6%

Oil prices rally strongly on Libyan outtages

• Crude oil rose 2.4% to close to $73.9 per barrel, benefitting from news of production outtages in Libya
• Gold prices and silvers prices were unchanged at $2,048 per ounce and $23.2 per ounce
• The grain and oilseed markets traded mixed to lower again overnight, with additional weakness coming after disappointing export sales data was released this morning, combined with a stronger dollar

Analysis by Arlan Suderman, Chief Commodities Analyst: Arlan.Suderman@stonex.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com