Daily Market Color January 6, 2023Yields Plummet Following Employment Data Sahil Pankhaniya Analyst Smaller-than-expected wage inflation kicks off massive bond rally. Treasury yields declined substantially across a steepening curve today, the 2-year yield decreasing ~20bps to 4.26% and the 10-year yield falling ~16bps to 3.56%. The move came despite a higher-than-expected increase in nonfarm payrolls (223k), ~20k greater than the median forecasts of 203k. Average hourly earnings rose 0.3%, the slowest rate since August of last year. Meanwhile, equities were the beneficiary from the lukewarm numbers, the S&P 500 and NASDAQ rising 2.29% and 2.56%, respectively. Labor market remains strong overall. Today’s slate of employment data releases signaled continued labor market strength. The unemployment rate was 3.5% in December, 0.2% lower than estimates and 0.10% lower than November. The labor force participation rate rose slightly to 62.3% vs. 62.1%. Month-over-month, hourly earnings increased 0.3%, slightly under analyst estimates of 0.4% and lower than 0.6% in November. Wage inflation is a necessary precursor to ongoing price inflation, and a deceleration in wages may suggest that the Fed’s hawkish policy is beginning to have an impact. Week ahead. Thursday’s CPI print will be a major highlight, which will be released at 8:30 AM. Headline CPI is expected to come in at 6.6% after hitting 7.1% last month. If CPI does decline, that would mark the 6th consecutive month of declines. Fed Chairman Jerome Powell will make a speech on Tuesday at 9 AM ET.