Markets may be closed Friday, but that doesn't mean there isn't market-moving news with the release of the March jobs numbers.
Overall, I'd call it a weird little report.
Non-farm payrolls didn't completely confirm the weakness in ADP report release earlier this week, nor the bump up in jobless claims.
The headline number of 236k, with -17lk of revisions was right in line with expectations, though maybe a touch above the "whisper" number.
Somewhat disappointing was private payrolls were only 189k, much lower than expectations, so government hiring picked up the slack.
On the Household side, there were 577k jobs added! That is impressive and reduces the longstanding gap between the establishment and household portions of the survey. It is also why the unemployment rate inched lower to 3.5% while the participation rate actually increased (which is good in my view).
Wage growth remained steady at 0.3% on the month (up from 0.2% last month).
Hours worked were a touch light.
What's It All Mean for the Fed and the Markets?
This allows/forces the Fed to remain on the "hawkish" side of things:
- 3.5% unemployment is almost the lowest it has been since they started hiking, so the "jobs for inflation fighting" argument has not materialized.
- 0.3% wage growth is "only" 3.6% annualized (ignoring rounding), which is getting into the comfort zone, but not as good as last month's number and this Fed is likely to want to beat down any re-emerging pressures.
You could probably craft a "Goldilocks" scenario around this data for markets, but equally compelling, especially around current positioning, you could craft a scenario that isn't great for markets.
Bottom Line
Rates. Higher yields and flatter curve. We should start pricing in more certainty of further hikes and a longer lag between them and when the Fed cuts (we are trading what the Fed will try and convince markets is necessary, not what we, or many others, think is the correct policy).
Credit. Dull. I'm not looking for much movement in spreads and this market will ultimately be looking more at bank spreads and any signs of supply of credit not keeping pace of demand at the private/loan side of things creeping into the bond market side of things.
Equities. The whole "stocks are long duration" assets, especially high-tech, mega-growth companies, should experience more of a pullback. I could see banks, commodities (Russell 2000, in essence) doing better. The underperformance of the Russell 2000 (IWM) versus the Nasdaq 100 (QQQ) has been eye-opening. I'm leaning to the "normalization" trade in stocks where we drift slightly lower, but more of normalization between the year-to-date winners and year-to-date losers.
I fully expect the data, on balance, to reinforce the "recession is near" narrative in the coming weeks. Virtually every piece of data this week was coming in at levels indicating the economy is slowing down, so that is why I cannot buy into any "Goldilocks" theories on Friday's numbers.
Enjoy the long weekend and start next week off right with me on Bloomberg TV and Radio at 7 a.m. on Monday!
