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Yields Surge After Robust Jobs Report

 

Employment Data Impresses

The Labor Department’s nonfarm payrolls report released this morning provided a number of highlights in support of a booming US economy-
 
250k Nonfarm payroll additions: A solid rebound from September’s downwardly revised +118k figure that was impacted by Hurricane Florence.  The strongest performing sectors included manufacturing (+32k) and professional & business services (+35k).  Payroll growth in the US has totaled 2.1 million year-to-date, the third fastest pace over such a time dating back to 1999.

 

 

3.7% Unemployment Rate: Remained at a 49-year low for the second consecutive month.  Additionally, the labor force participation rate ticked 0.2% higher to 62.9%

 

 

+3.1% Average Hourly Earnings YoY:  It was the first time that annual wage growth topped 3% in nearly a decade, helped in part by a weak figure in October 2017.  On a monthly basis, wages grew by a more modest 0.2%, matching median forecasts.

 

 

US Treasurys sold off following the robust labor data, which also assisted in pushing the probability of a December rate hike by the FOMC up to 75%, as per Fed funds futures.  Yields/swap rates rose sharply, climbing 5-9bps across the curve as the 10-year note yield crossed over 3.21% for the first time in the past ten days and the 2-year yield touched its highest level in ten years at 2.92%.

 

 

Conflicting Chinese Trade Updates

Risk assets in the US started off on a high note before making a U-turn following news out of Washington which contradicted President Trump’s recent optimism towards making a trade deal with China.  In an interview with CNBC this morning, Trump’s top economic advisor Larry Kudlow was much less confident that an agreement was in the works with China, stating “We’re doing a normal, routine run-through of things that we’ve already put together and normal preparation. We’re not on the cusp of a deal.”  He went on to add that “there’s no massive movement to deal with China”.  In contrast, this afternoon President Trump continued his trade-friendly rhetoric as he confirmed to reporters that the US and China were much closer to striking a deal, saying that “a lot of progress has been made”.

 

 

Trump’s comments helped US stocks pare a portion of losses later in the trading session, but major equity indices ultimately finished lower, with the Nasdaq losing 1.04%, S&P 500 falling 0.63%, and DJIA declining 0.43%.  Shares in Apple weighed heavily on the general market, as the tech giant lost 6.63% after its quarterly earnings report provided weaker-than-expected forward guidance.  In commodity markets, WTI crude oil settled nearly 1% lower on the day to $63.14/barrel, capping off the worst week since February as futures declined a total of 6.6%.

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