Rates Rise Nearly 20bps After Labor Market Flexes its Muscles

Rates and equities climb after blockbuster jobs report, strong tech earnings. This morning’s data revealed a resilient labor market, which sent rates soaring 20bps higher from session lows. Short term rates closed 17bps higher while the long end rose 10+ bps, most tenors on the yield curve now back above 4%. Meanwhile, tech led the way for equities after Meta and Amazon reported strong earnings, the former up 20% today to a new all-time high, its largest intraday gain in a year. The NASDAQ climbed 1.74% while the SPX rose 1.07%.  

Labor demand shows strength as NFP soars higher. 353k jobs were added in January, nearly double the +185k forecast and the greatest increase in a year. December’s +216k print was revised upward to +333k, adding evidence that labor demand remains robust. Meanwhile, the unemployment rate stayed flat at 3.7% despite an estimated jump to 3.8%, while average hourly earnings spiked significantly. The 0.6% MoM average hourly earnings print was the highest since March 2022, another obstacle for the Fed in its inflation fight.

Fed Governor Bowman warns that it is too early for rate cuts. Michelle Bowman said today that many upside inflation risks remain despite “encouraging” progress, though she expects inflation will decline further. She voiced a cautious approach toward rate cuts and stated, “Reducing our policy rate too soon could result in requiring further future policy rate increases to return inflation to 2% in the longer run.” Fed Funds futures suggest a 22% probability for a 25bp rate cut at March’s FOMC meeting, a steep decline from ~45% at the beginning of the week.