US jobs unweathered so is Fed tapering

The 48K rise in construction jobs coupled with absence of major revisions reduces the “weather factor” from the report, which lends credence that the recovery in US is on track for drawing further normalisation of stimulus from the Federal Reserve. US non-farm payrolls added a weaker than expected 113K in net jobs in January, well below the 180K consensus, while the unemployment further declined, reaching 6.6%, the lowest since October 2008.

The assumption that the 1.3 million claimants who lost their jobless had stopped looking for work – which would have pushed them out of the labour force and weighed on the unemployment rate – may be countered by a rise in the employment participation rate to 63% from 62.8%.

Tapering unweathered

Net-net, the jobs figures are considered sufficiently positive for the US economy, but are at risk of re-activating the paradigm of “good news are bad for the market” if they embolden Fed Chairwoman Yellen to make a hawkish testimony at her appearance to Congress next week, making the case for further tapering in monthly asset purchases and potentially jeopardising a fragile US recovery at a time when China, the world’s 2nd largest economy revealed continued signs of weakness in manufacturing and services.

Yields post first weekly gain of the year

Since markets will see an additional jobs report before the March FOMC, the data-watch function of the markets is maintaining support in the 10-year yield around the 2.65%.
The fall in unemployment to 5 ½ year lows and the steady 1.9% y/y reading in average hourly earnings lend fresh support to US bond yields, and giving the 10-year yield its first weekly gain of the year. The last time yields have fallen for 6 straight weeks was in May 2012, when economic deterioration eventually led to the 3rd QE later that year.

Similarly, the stabilisation in yields could mean fresh support for USDJPY, and a gradual recovery above 103 in the event that Yellen signals that tapering remains untapered. One potential source of renewed declines in bond yields and USDJPY could emerge in the event that a hawkish Fed cast new worries in emerging markets, thereby triggering fresh declines in equities and yields.

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