It was all about nonfarm payrolls - ANZ

Analysts at ANZ explained that it was all about non-farm payrolls at the end of last week and it didn’t disappoint.

Key Quotes:

"What got the market most excited were average hourly earnings pushed up to 2.9% y/y, nearly an eight year high.

Alongside the Feds Kaplan stating the base case is 3 hikes in 2018, but there could be more, this saw US yields push higher with the 10-yr hitting 2.84%. Currently, the market is expecting another hike in March (93% priced) and has another 1.5 hikes by year-end.

Equity markets got the first real jitters for 2018 with the major US indices the hardest hit falling 2-2.5% and European indices back 1.5-1.7%. Valuation concerns, earnings momentum moderating and softer commodity prices weighing on energy/industrial stocks also played a part. The USD responded, with the NZD and AUD taking the biggest dives.

Nonfarm payrolls

"The headline non-farm payrolls gain of 200,000 for January was broad-based with construction, manufacturing, business services and leisure all seeing solid growth. But there was even a rebound in retail employment (+15k) after losses throughout much of 2017. The unemployment rate held steady at 4.1% with a population boost (revisions up), offsetting employment gains and steady participation. Average hourly earnings lifted to 2.9% y/y after spending much of 2017 in the mid-2% range. Many are anticipating a further fall in the unemployment rate in 2018.

Indeed the Fed’s Kaplan said ‘we’ll likely overshoot full employment this year’. It will be interesting to see if pay rises entice more workers back into the workforce increasing the participation rate. Elsewhere University of Michigan sentiment rose to 95.7 with both current and future expectations upbeat. US factory (1.7%) and durable (2.8%) goods orders both maintained their recent pace of gains too."