09 January 2023
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NFP shows slowing wage growth even as job gains remain robust

By Daniel Richards

The final nonfarm payrolls report for 2022 was something of a goldilocks print as job growth remained robust with a net gain of 223,000 new jobs (beating expectations of 205,000) but wage growth slowed, raising hopes that the Fed might yet achieve a soft landing despite its aggressive rate hiking. Average hourly earnings growth slowed to 0.3% m/m, lower than the predicted 0.4%, and lower than November’s 0.4% (which was itself downgraded from the initial reading of 0.6%). Headline unemployment declined to 3.5% once more (expectations were for it to rise from 3.6% to 3.7%) even as the participation rate ticked up two basis points to 62.3%.

Other data out of the US on Friday was somewhat less positive, indicating a slowdown already underway in the economy as interest rate hikes take their toll. The ISM services index turned contractionary in December, dropping to 49.6 from 56.5 in November and missing projections of 55.0. This was the first contraction since May 2020 during the peak of the Covid-19 crisis. A positive takeaway for the Fed though was cooling in the prices paid subcomponent which fell to 67.6, the lowest reading since January 2021. Meanwhile factory orders declined 1.8% m/m in November, greater than the predicted 1.0% fall, and November durable goods orders was confirmed at a 2.1% contraction in the final print.

Eurozone CPI inflation data slowed to 9.2% y/y in December, compared with 10.1% the previous month. This was slower even than the projected 9.5% and marked the slowest pace of price growth since August as slower growth in energy prices brought down the headline level –core inflation actually accelerated to 5.2% y/y, from 5.0% previously and higher than the predicted 5.1%. The slowdown on the headline was anticipated given the individual country prints already released this week, especially France’s downside surprise, but the ECB is unlikely to be prompted into a pivot any time soon all the same given the rhetoric from Christine Lagarde around further rate hikes to come following the December MPC meeting and the uptick in core inflation. Eurozone retail sales grew 0.8% m/m, stronger than the predicted 0.6% but were still 2.8% lower than a year previously, while consumer confidence was flat at -22.2, in line with expectations.

Data out of Germany on Friday surprised largely to the downside, as monthly indicators showed weak performance from both retailers and factories. Retail sales for November did increase m/m at 1.1% but this was on the back of the 2.8% contraction and missed expectations for 1.5% growth. Furthermore, sales were still down 5.7% compared to where they were a year earlier. Meanwhile factory orders saw a much larger drop, falling 5.3% compared to expectations of a 0.5% contraction, translating into an 11.0% y/y contraction. Weak foreign orders from the Eurozone drove the slump, but looking ahead, the reopening of China could provide some support in the coming months.

Today’s Economic Data and Events

  • 13:00 Eurozone Sentix consumer confidence index, January. Forecast: -18.0

Fixed Income

  • US Treasuries rallied strongly at the end of the week as the market focused on wage growth slowing in the latest labour market data. Strong headline jobs growth came with a deceleration in average hourly earnings and helped to push yields on the 2yr UST down 21bps on the day, to close out at 4.2474%. In the 10yr, yields fell about 16bps to 3.558%. Market pricing for the peak in Fed funds has now solidified below 5% for the middle of the year.
  • European bonds also got a boost at the end of the week thanks to slower than expected inflation numbers for the Eurozone. Yields on the 10yr bund fell 10bps on Friday to close the week at 2.204% while French yields also closed around 10bps lower at 2.714%.
  • Emerging market bonds generally had a strong week to start the year with South African 10yrs down 8bps at 10.57% while emerging Europe closed stronger. Dollar-denominated bonds also rallied with an EM index up by 0.6% at the end of the week and global high-yields bonds rose by almost 1%.
  • Central bank speakers will be the showcase for monetary action this week with South Korea the only major economy taking a decision this week (25bps hike expected).


  • The dollar fell against peers at the end of the week in response to the goldilocks jobs report. The broad DXY index fell more than 1% with EURUSD adding 1.2% to 1.0644 and GBPUSD jumping almost 1.6% to 1.2093. The potential for a soft landing, or a less hawkish Fed, will help to keep currency markets bid against the dollar in the near term. USDJPY dropped by 1% to 132.08.
  • Commodity currencies also showed wide moves at the expense of the dollar. USDCAD fell 0.9% to 1.3444 while AUDUSD added almost 1.9% to 0.6877 and NZDUSD added 1.8% to 0.6347. News that China may deploy more effective vaccines against Covid-19 should also help to support commodity currencies.


  • China’s reopening boosted Asian some equity markets last week, especially the Hang Seng and the Shanghai Composite which closed up 6.3% and 2.7% w/w respectively on Friday. Japanese indices were not so positive as both the Nikkei (down 1.4%) and the Topix (down 1.7%) closed lower, but South Korea’s KOSPI gained 2.4% over the week.
  • European equity markets were amongst the strongest performers last week, with all the key indices closing higher as they benefitted from the softer inflation prints through the back end of the week. The composite STOXX 600 added 4.6% w/w, with the DAX adding 4.9% and the CAC 6.0%. The UK’s FTSE 100 closed up 2.5% w/w.
  • In the US, there were more modest gains over the week as a whole but Friday saw strong gains helping to offset losses earlier in the week as investors took the NFP report as a positive for equities. The NASDAQ added 0.9% w/w while the Dow Jones and the S&P 500 both closed the week 1.2% higher.
  • Saudi Arabia’s Tadawul closed up 0.5% w/w. The DFM closed down 1.0% and the ADX 0.1%.


  • Oil markets closed Friday with mixed but muted moves. Brent futures fell 0.15% to USD 78.57/b while WTI gained almost the same amount to USD 73.77/b. Both contracts are down about 6-7% since the start of the year as market attention focuses on near-term weakness in China’s economic activity.
  • Gold prices got a boost from markets fading hike expectations for the Fed. Spot gold added 1.8% at the end of the week to close at USD 1,865.69/troy oz along with stronger gains across the rest of the precious metals complex.

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Written By

Daniel Richards Senior Economist

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