Daily Market Color

Stocks Jump on Regulatory Reform as Treasurys Fluctuate with Mixed Labor Data, Fed Rhetoric

Payrolls Surge, Wages Disappoint in Jobs Report  The Labor Department’s much anticipated employment report for January contained some mixed signals about the health of the job market.  Nonfarm payroll additions totaled a seasonally-adjusted 227,000 last month, the largest rise in the past four months and significantly exceeding expectations of 180,000, as retailers (+45,900) and construction firms (+36,000) ramped up hiring.  The impact of the surge in payrolls was largely muted by slower wage growth, with worker pay increasing a modest 0.1% after median forecasts had projected a 0.3% monthly rise.  Additionally, the advance in average hourly earnings for December was revised down to 0.2% from a previously reported +0.4%.  January’s unemployment rate rose to 4.8% from 4.7% in the prior month, marginally above market consensus of 4.7%, but still well within the target range of the Fed’s dual mandate.  A potential factor in the unemployment rate increase, the labor participation rate climbed 0.2% as more Americans were seeking work in January.  The overall sentiment from the report points to a growing US economy which possesses the capacity to run a bit hotter before inflationary pressures would require the Federal Reserve to take action.  Initial reaction to the labor data was a rally in Treasurys, however the gains were reversed throughout the trading session following a hawkish speech from Fed official John Williams later in the day.  Williams’ recognition of the potential appropriateness for three rate hikes during 2017 and possible next rate move in March resulted in Treasury yields/swap rates finishing 1-2 bps higher to close the week.   

Trump Plans to Overhaul Dodd-Frank
Equity markets rallied today as Donald Trump signed an executive order to officially begin the review process to overhaul the Dodd-Frank Act.  Speaking on the matter, White House National Economic Council Director Gary Cohn explained that “Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year.”  The reformation of Dodd-Frank is aimed at decreasing the regulatory burden on banks to ease access to capital for businesses.  All three major US stock indices closed 0.5% – 1.0% higher for the session, with the share prices of banks (+2.5%), not surprisingly, leading the way. 

Overnight Volatility in Japanese Bond Market
The Bank of Japan’s ability to cap the yield on the 10-year JGB at its near 0% target was put to the test early this morning.  After a smaller-than-expected purchase by the BOJ as part of its regular bond-buying program, a sharp selloff in Japanese bonds ensued, bringing the yield on the 10-year JGB to its highest level over the last 12 months, at 0.15%.  In response, the central bank announced its willingness to buy an unlimited number of 5- and 10-year bonds at prices corresponding with a 0.11% yield.  The resulting additional purchases totaled 723.9 billion yen ($6.4 billion), bringing the 10-year yield back down to its closing level of 0.095%.

Have a great weekend.

Ready to start a conversation?

We offer free consultations and platform demos.

Let's Talk