February 2nd, 2018 was the day when a new series of employment and earnings figures from the US were released. The numbers have again been encouraging, after a slight disappointment a month ago. For those people trading online, that is good news as it could signal that we’ll have activity in the financial markets this year, as well.
Nonfarm Payrolls at 200k and previous numbers revised upwards
Analysts expected 180k new jobs added in January, but the actual number exceeded expectations and came out at 200k. Also, the numbers for December had been revised upwards, from 148k to 160k which added a little to the enthusiasm. Unemployment remained flat at 4.1%, which is a multi-year low. After the 2008 crisis, markets have focused on the job market and in the US the improvements have been substantial. This shows the economic activity had recovered after the crash and the expectations for the future are high, now that the Trump administration managed to pass the long-awaited fiscal tax cuts plan.
Alt text: NFP chart
Earnings beat expectations as well
Average Hourly Earnings is another figure released on Friday that managed to exceed expectations, now at 2.9%, with an initial forecast of 2.6%. Since earnings are high it means more money is ending up in peoples’ pockets, which also means that inflation should continue to edge higher in the year ahead. US yields are already ticking up and analysts expect the 10Y to reach 3.5% by the end of the year. For those people trading online, it could mean more opportunities since all asset classes are going to be impacted. Higher inflation in the US means that the Fed could accelerate the rate hike process. Currently, the central bank projects three rate hikes for 2018, which are already priced in by more than 95%. If any hints regarding a faster rate normalization will spread the market, analysts expect the US dollar and treasuries to benefit.
The tax cuts plan that had already been adopted in the US before Christmas is also expected to boost the economic activity. Several big companies already announced substantial investments for the year ahead and that should impact the economic indicators in a favorable way. Besides the tough political negotiations for the lifting of the debt limit, there are few downside risks for the good economic performance in the US in the short-term.