Trading with point and figure

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who is next..??
 
a) Payrolls / Establishment survey - Echoing the array of very positive anecdotal evidence, the Payrolls gain of 313K allied with a 54K net upward revision to December & January Payrolls was, to put it in the vernacular 'bigly yuuge', above all at this stage of the cycle. Strength was seen across the board - Manufacturing +31K, Construction +61K, Professional/Business +50K, Financial Activities +26K, and indeed a fairly large contribution from govt at +26K. The breadth may give rise to doubts as to whether the seasonal adjustment process may be flattering the readings, though historically February is a solid month for payrolls, with very few outliers, so such criticism would probably be misplaced.

b) Unemployment Rate / Household Report - The Unemployment Rate was unchanged at 4.1% thanks to a big jump in the Workforce (+806K), accompanied by a solid rise in Employment (+785K), and only a modest drop in Unemployment +22K. A small blemish is that the U-6 Underemployment rate remains stuck at 8.2%, still well above the 7.0% seen in 2000/2001 when the Unemployment Rate was last this low, however the jump in the Participation Rate to 63.0%, matching the highs seen in 2016 and 2017 offers a considerable offset.

c) Average Hourly Earnings / Weekly Hours - Earnings and Hours offered a similar divergent narrative, with Average Hourly Earnings rather disappointing at 0.1% m/m to bring the y/y rate back to 2.6% from a revised 2.8% in January, though still in line with the recent average. By contrast Average Weekly Hours bounced back quite sharply (0.6% m/m) to 34.5, with Manufacturing Hours back up to the 2017 high of 41.0.

d) There will be many who will opine that with discouraged workers returning to the workforce in ostensibly sizeable numbers, then upward pressures on wages are likely to remain muted. The counter to that would be that this assumes that the 'returners' will be able to meet the rising volume of reports about skills shortages (as per the Fed's Beige Book: "Most Districts cited on-going labor market tightness and challenges finding qualified workers across skills and sectors, which, in some instances, was described as constraining growth"), which makes this seem somewhat improbable. Be that as it may, the lack of rising wage pressures does give the FOMC plenty of room for manoeuvre.

e) Market reaction - Once again, market reaction has been relatively muted, due to the divergent pull of payrolls and wages, which may well suit traders with one eye on the weekend, though Treasury traders will probably look to start carving out a concession ahead of next week's lump of Bill ($96 Bln) and Coupon ($62 Bln in 3, 10 & 30-yr) auctions. Markets will nevertheless be hoping for rather more inspiration from next week's CPI and Retail Sales that top a bumper run of US statistics, conveniently coming ahead of the FOMC meeting on March 20/21.

- Charts: USD TWI, US 10-yr yield, WTI, US 2/10yr yield spread, US 10-yr TIPS breakeven inflation rate, S&P500 future and Fed rate probabilities by meeting.

..........................................................................

Marc Ostwald
Global Strategist
ADM Investor Services International
 
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