Strong US Jobs Report and Central Bank Intervention in China Calm Jittery Markets

Financial markets stabilized after a relatively calm overnight session in China and a robust US payrolls report helped investors look past this week’s volatility.  Chinese authorities took a number of steps to calm markets, which appeared to be well received by investors.  The People’s Bank of China strengthened the yuan for the first time in nine days, state-backed funds purchased Chinese equities, and the securities market regulator abandoned the new circuit breaker mechanism that some analysts feel may have exacerbated this week’s losses.

Today’s release of the December nonfarm payrolls report showed robust US job growth last month, widely exceeding analyst estimates.  The Labor Department’s report showed 292,000 jobs were added compared with the 201,000 jobs economists were expecting.  Positive revisions to October and November data make this the third consecutive month with jobs growth above 250,000.  2014 and 2015 now complete the best back-to-back years for US hiring since 1998-99.  Unfortunately, worker pay hasn’t caught up to employment growth, as average hourly earnings disappointed by remaining unchanged.  Year over year growth, however, ticked up to 2.5% due to a low reading from last December pushing up the Y-O-Y comparison.

Despite the robust payrolls report, the US markets have experienced a fairly tame reaction, as declines in oil prices and continued uncertainty about global market stability (despite 1 good day) limited US gains in equities.  Treasuries and swap rates are slightly better bid, rallying 1-2 bps across the curve, but certainly far short of the move in yield that many would have expected with such strong payroll data.