Daily Market Color

Rates Rise as Unemployment Rate Falls to 6.9%

Rates climb sharply higher as jobs report surprises to the upside
October’s nonfarm payrolls report showed a surprise decline of the unemployment rate to 6.9%- down sharply from the previous rate of 7.9%. The economy added 638,000 jobs in the month of October vs. estimates that had called for an increase of 580,0000. Wages, which had been stagnant in previous months remained subdued- climbing only 0.1% month-over-month. The strong report led rates sharply higher at the long-end of the curve, the 10-year Treasury yield climbing 6 basis points to 0.82%. This latest move has pulled rates nearly 10 basis points above their recent post-election lows, though still well below the pre-election highs.
Fed leaves rates unchanged
During the FOMC announcement, Chair Jerome Powell announced the Fed has unanimously voted to leave their benchmark rate its current near-zero level.  Powell added that “economic activity has continued to recover,” but “the pace of improvement has moderated.”  The Fed has prioritized monitoring the recent rapid spread of COVID-19 in the US and its impact on household finances given the lack of fiscal stimulus.  Powell continued to advocate for a large stimulus package, but added that the Fed still has a variety of tools at its disposal to help move along the economic recovery.  One strategy the Fed is discussing is expanding its balance sheet by increasing their $120 billion monthly purchases of Treasurys and MBS.  Powell agreed the Fed may “reach a view at some point that we need to do more on that front.”
Presidential election remains undecided
Post-election uncertainty stretched into its third day as several states remain too close to call. Pennsylvania, North Carolina, Georgia, Nevada and Arizona continue to count votes while several decided states remain subject to legal battles. Adding to the election uncertainty are two Senate races, both in Georgia, that appear to be headed to run-off elections on January 5th. Those run-offs would leave control of the Senate up in the air through the end of the year. Despite the uncertainty, the S&P 500 has soared 4% on election “relief” while the VIX or “fear index” has plummeted to 25 from its pre-election reading of 40.

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