Nonfarm payrolls rise sharply in January

US nonfarm payrolls surged higher in January, gaining 353K, significantly higher than consensus expectations for a 185K rise. The January report from the Bureau of Labor Statistics also showed a material upward revision to the December figure, rising to 333K from an initial estimate of 216K. The latest rise in payrolls was broad-based, although health care and government continued to make large contributions to the total. The unemployment rate remained unchanged at 3.7% for the third consecutive month. Average hourly earnings also rose sharply, gaining 0.6% m/m and 4.5% y/y, in a move that appears at odds with other measures such as the quarterly employment cost index. It is possible that unseasonable weather has affected the latest prints, with response rates in both December and January well below average. Regardless, the January data is likely to strengthen the Fed’s argument in favour of holding rates at their current levels. In an interview which aired on Sunday night, Jerome Powell, reiterated that a cut in March was unlikely, with Fed officials needing a greater degree of confidence that inflation is on course to hit its target. Market expectations of a March cut have fallen back to 18%, from 38% prior to the data release.

The Caixin services PMI continued to point to an expansion in activity in January, with a reading of 52.7. The print was marginally lower than the December value of 52.9, and consensus expectations. While services activity in China was likely supported by public holidays in January, the reading is consistent with readings from the official PMI reading, which also showed an expansion in activity.

Today’s Economic Data and Events

• 11:00 TU CPI Jan: forecast 64.56% y/y
• 14:00 EC PPI Dec: forecast -10.5% y/y
• 19:00 US ISM services index Jan: forecast 52

Fixed Income

• US Treasury yields rose sharply on Friday, driven by higher-than-expected nonfarm payroll data for January. The 2yr UST yield rose 16bps to reach 4.3638% while the 10yr gained 14bps to 4.0199%. Yields in other major bond markets rose on Friday too, with the UK 10yr Gilt up 17bps to 3.9146% and the German 10yr Bund up 9bps to 2.240%.

FX

• The dollar gained against peer currencies on Friday, with the strong NFP numbers trimming expectations of a rate cut. The move saw the dollar spot index ending the week almost 0.5% higher. EURUSD fell 0.8% to 1.0788 while GBPUSD dropped 0.9% to 1.2631. USDJPY gained 1.33%, to reach 148.38.
• Commodity currencies also fell on the day with AUDUSD dropping 0.9% to 0.6512 and NZDUSD declining 1.29% to 0.6065, while USDCAD rose 0.58% to 1.3463.

Equities

• Strong earnings results, particularly in the technology sector, buoyed US equity markets on Friday. The Dow Jones rose 0.35%, the S&P 500 added 1.07% and the NASDAQ increased 1.74% on the day, with all three indices ending the week higher. European markets, in general, rose on Friday. The EuroStoxx index increased 0.34%, the DAX gained 0.35%, and the CAC 40 rose by a marginal 0.05%. The FTSE, in contrast, dropped 0.09%.
• Locally, the DFM rose 0.2% on Friday, while the ADX declined 0.17%.

Commodities

• Oil prices fell on Friday with the jobs data reducing the likelihood of a near-term rate cut. Brent futures fell 1.7% to USD 77.33/b while WTI declined by 2.1% to USD 72.28/b. Oil futures have risen marginally in early morning trade today.