Friday’s Jobs Report Sends Rates Lower Across the Curve

 

Friday jobs report sends rates lower as wage inflation disappoints and headline number misses expectations. December’s nonfarm payrolls report showed the US economy added 145,000 jobs during the month, below forecasts that had called for a gain of 160,000. The unemployment rate was unchanged at 3.5% (a 50-year low) while labor force participation also stayed stagnant at 63.2%. The disappointing report ultimately led rates lower across a flattening yield curve- the 10-year Treasury yield falling to 1.82% while the spread between 10-year and 2-year rates fell to 25 basis points.

 

 

UK economy contracts unexpectedly as Bank of England debates rate cut. UK GDP fell 0.30% in the month of November, well below forecasts that had called for no change in GDP. December’s figure will need to be 0.20% or higher to prevent an economic contraction in Q4. The decline in growth comes as the BOE has surprised markets with its dovishness- public comments by several officials suggesting they may follow the Fed’s lead in preemptively cutting rates to boost the economy.

 

 

Week ahead. This afternoon, the Treasury Department will publish data on government spending and tax collection for December. The release will provide an update on the $343 billion deficit the US has run since the beginning of the fiscal year. Boston Fed President Eric Rosengren and Atlanta Fed President Raphael Bostic will discuss their economic outlook and current monetary policy as well. November’s CPI report will come out on Tuesday- current expectations are for headline inflation to tick higher to 2.3% (the highest level since mid-2018). The latest producer prices for the month of December will be released on Wednesday, and are expected to increase (albeit marginally) to a 1.3% year over year rate. The Fed’s Beige Book will be released later that same day. Retail sales will come out on Thursday morning and are expected to be strong as all indications point to a strong holiday season or retailers.