Payrolls Don’t Disappoint

Nonfarm payrolls increased 211,000, exceeding the 200,000 consensus, while September and October data was upwardly revised by 35,000.  Average hourly earnings increased 0.2% MoM after a robust 0.4% uptick in October, and the unemployment rate held steady at a 7.5-year low of 5.0%.  The strong report indicates an improving US economy and further solidifies the prospects of the Fed hiking short rates at the December 15-16 meeting.  Speculation and market shifts going forward will likely be more focused on the Fed’s characterization of the pace of subsequent hikes in 2016 and beyond.  Fed funds futures are now predicting about an 80% chance of liftoff on December 16th.

Post-payrolls, U.S. equities have rebounded sharply from yesterday’s selling with most major indices up about 2%.   The dollar has also snapped back from yesterday’s weakness, up vs. most major currencies.  Treasuries initially sold off after the payroll print, but then Treasury and swap rates reversed course and are marginally lower now.  Other economic data was largely overshadowed by the NFP, but the widening of the US trade deficit in October is also worth noting.  This morning the Commerce Department announced the trade gap expanded 3.4% MoM, including a 1.4% fall in exports to a three-year low.  The slide in exports due to the strength of the dollar and slow growth abroad, has prompted some economists to downgrade Q4 growth estimates, but other healthier areas of the US economy are expected to prevent a significant setback.

Aside from the data, the market gets a variety of Fed speakers later today including new Philadelphia Fed President Harker, Kocherlakota (dove, voter ’17), and Bullard (hawk, voter ’16).