Rates Fall Despite Strong Jobs Report This Morning

 

The US economy added 225,000 in January beating forecasts. The jobless rate rose slightly to 3.6% while wages increased by 3.1%. Payrolls for the previous two months were also revised to be 7,000 higher than originally reported- bringing the 3 month average to 211,000 (the best pace since 2018). Despite the strong report, rates are lower across the curve and equity futures point to a negative open- the current 10-year Treasury yield falling to 1.605%.

 

 

Fed Governor Quarles indicates Fed is ready to tweak liquidity regulations to smooth workings of repo market. Quarles was clear that they were his own thoughts rather than firm Fed policies, but suggested that banks could assume use of the discount window in liquidity stress tests- in turn allowing banks to hold Treasurys rather than cash (a key issue during the September liquidity crunch). Overnight rates have remained mostly in check as the Fed has provided additional liquidity through its repo operations, but market participants are beginning to clamor for a permanent solution.

 

 

Day ahead. Later this morning, US wholesale inventory numbers for December will be released- forecasts calling for a drop of 0.1% from the previous report. Shortly after, the Fed will release its semi-annual monetary policy report for Congress. Later in the day, US consumer credit numbers will be released. Forecasts call for consumer credit to rise by $15 billion following November’s disappointing figure.