Global markets were caught flat-footed this morning as the Bureau of Labor Statistics reported that U.S. non-farm payrolls for January increased by 257,000 jobs. Job gains from December were revised upwards from 252,000 to 329,000, reflecting more seasonal hires than first thought.m
The news sent equities on both sides of the Atlantic higher, as money rotated out of safe haven bonds and gold. The yield on the 10-year Treasury jumped 8 basis points this morning, to 1.88%, reversing a trend that had seen money flowing into bonds at the highest rate in almost six years. Gold dropped to a three-week low as fears of an early interest rate hike in the U.S. by the Federal Reserve were amplified. Gold dipped below $1,240/oz immediately after the payrolls report, before recovering. The U.S. dollar went vertical to break through both the 93 and 93.25 mark on the DXY dollar index, which amplified gold's pullback.
Yesterday in the Markets
Wall St. was up an average of 1% across all major indices yesterday, as gold was only marginally lower. Brinkmanship between the new Greek government and the so-called Troika of the ECB, IMF and EU continued, even as the ECB rescinded an exemption that had let junk-rated Greek government bonds be used as collateral for ECB loans to Greek banks.
Factors Affecting Gold Today
The big news is of course the big beat in non-farm payrolls this morning, which has had far-reaching implications globally. But, as Kai Ryssdal says on Marketplace, "First, let's do the numbers."
257,000 new jobs were added to the U.S. economy in January, against an expected 230,000. Job gains for December and November were also revised sharply upwards. December's numbers went from 252,000 to 329,000, and November's job gains jumped a huge 70,000.
The unemployment numbers actually increased, from 5.6% to 5.7%, as more people who had given up finding employment returned to the job hunt. The labor participation rate finally saw an increase, from 62.7% to 62.9%. Wages also increased, by a half-percent after falling .2% in December. Part of that surprise number came from several states raising the minimum wage in January. Twenty one states and the District of Columbia passed laws raising the minimum wage, while a Federal law is stuck in Congress.
This news greatly increases the chances that the Federal Reserve will hike benchmark interest rates for the first time in nine years from the near-zero levels that they have been since the global financial crisis. This is the reason for the soaring dollar and money leaving Treasuries this morning. Bond buyers expect to get more yield for their money in the near future, so are either moving their money into cash, or into stocks in anticipation of hot money flows out of Europe and Asia into the U.S. stock market.
Crude oil is up this morning despite the huge surge in the dollar, as "black gold" attempts to extend its rally to a second straight week. A recovery in crude prices will help oil-exporting countries as well as the fracking industry in the U.S., which has seen recent layoffs and closures of marginal wells.
Brinkmanship between Greece's new anti-austerity government and its creditors is emboldening the new anti-austerity party in Spain, known as Podemos. Podemos leaders have traveled to Athens to congratulate and strategize with their Greek counterpars in Syriza. Although Podemos is widening its lead over the ruling party in Spain, the political landscape there is so fractured that no party can claim support from even 1/3 of the population.
In Switzerland, trade unions are demanding the central bank join the currency wars and devalue the Swiss franc. The abandonment of the CHF-EUR peg by the government in Bern last month is already hurting Swiss exports into the EU.
Monday will bring more data for those concerned about a slowdown in the Chinese economy, especially raw commodities traders. The government in Beijing has recently introduced some more targeted stimulus measures, and the slew of reports that will be released Sunday and Monday night, New York time, should give insight into the condition of the economy in the Middle Kingdom.
Of course, the eyes of the markets will be on the escalating showdown between Frau Merkel and the "business casual" leaders of Greek's new leftist/populist government.