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Market Commentary

It's Payroll Day


Posted on December 7, 2018

Good morning!

Trade fears will take a break for a bit this morning, as the markets digest the employment report. Key here is what are wages doing. Lately, wages have been trending higher.

  • The employment report was announced this morning and was a solid report, nothing surprising, in the end an okay report as numbers were slightly below expectations
    • Payrolls grew by 155k vs the expected 198k
    • The unemployment rate remained at 3.7%, matching the lowest rate since December 1969
    • The labor participation rate remained at 62.9% as well
    • More importantly, average hourly earnings rose only 0.2% versus the expected 0.3%, while last month was lower at 0.1% against the initially reported 0.2%
      • As for the yearly numbers, earnings rose 3.1% as forecasted, which is the best pace since 2009
    • This doesn’t do anything for the Fed in a few weeks at their next FOMC meeting, most believe the December rate hike is done, the question is how many more hikes are in the cards next year while inflation doesn’t appear to be an issue
    • Analysts are still expecting a yield curve to remain extremely flat
      • Right now, the 2yrs/10yrs is 13 bps
  • Yesterday, the economic news was less than stellar
  • The stocks markets had a wild ride yesterday, as the Dow closed down only 79 points after being down over 700
    • The markets seemed to like an article in the WSJ yesterday discussing how the Fed may signal a wait-and-see approach after their December meeting, although many still see a hike again in March
    • See article here
    • “Pivot” seems to be the buzz word in 2019 for the Fed, as they begin to focus on data, rather than expecting a 25 bps hike every other meeting
  • The NY Fed just updated their recession indicator, and its creeping slightly higher
  • Oil prices fell after Saudi Arabia said OPEC and its allies were working towards a production cut that is smaller than many traders were anticipating
  • Fed governor Lael Brainard speaks on financial stability at 12:15pm and the St. Louis Fed's James Bullard speaks on the U.S. economy and monetary policy at 1pm
  • Next week:
    • CPI, retail sales, and industrial production are next week’s key data releases
  • News
  • Treasuries
    • 2-yr: 2.77%
    • 5-yr: 2.76%
    • 10-yr: 2.90%
    • 30-yr: 3.18%
  • LIBOR
    • 1-month: 2.38%
    • 3-month: 2.77%

Have a great weekend!  

Fred

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