Payroll Report Reinforces the Expectation for a Rate Hike Next Week

Today’s much anticipated employment report released by the Labor Department displayed a second consecutive month of robust payroll gains.  The pace of job creation during the month of February recorded a seasonally adjusted 235,000, exceeding expectations of 200,000, albeit slightly below January’s 238,000 revised level.  Private payrolls rose by a total of 227,000, led by strong gains in the construction (+58,000) and manufacturing (+28,000) sectors, which offset a 26,000 drop-off in retail positions.  In addition, the unemployment rate decreased to 4.7% last month while average hourly earnings grew 2.8% YoY, both in-line with median forecasts.  The labor participation rate increased to its highest mark in nearly a year at 63%, and the number of Americans out of the labor force declined by 176,000 to 94.2 million.  Overall, the report provides further support of a healthy labor market near full employment and stands as what should be the final confirmation needed for the Fed to increase rates at their two-day meeting next week.  Both equity and bond markets had a tempered reaction to the robust report.  All three major US stock indices are currently trading up 0.15%-0.25% while Treasury yield/swap rates have been fluctuating from unchanged to down 1-4 bps across the curve throughout the session.  The yield on the 10-year note looks poised to finish the week below 2.6%, presently trading near 2.575%.

Abroad, the euro increased to its highest value in three-weeks following a report that the ECB had discussions surrounding the potential for a rate hike prior to the end of its quantitative easing program.  It was rumored that some central bank members had suggested an earlier-than-planned tightening of the monetary policy via an increase to benchmark rates, but the idea did not gain the support of a broader audience.  The euro currency responded with a 0.9% increase during today’s session, rising to $1.06678/EUR.

Crude oil resumed its decline today, shedding an additional 1.7% as concerns over supply continue to impact the commodity.  The Baker Hughes report displayed a 12-rig weekly addition in the US, bringing the total to 768, up 288 rigs from the previous year.  A barrel of West Texas Intermediate fell to $48.50, finishing the week down roughly 9%.