There were a lot of positive takeaways from the US jobs report yesterday here. That at least if you’re a dollar bull, with the numbers offering plenty in terms of reaffirming steadier labour market conditions to start the new year. That being said, I would be remiss not to point out that one data point doesn’t make a trend.
The US labour market picture is still one that reflects a weakening position, with the overall trend in payrolls clearly highlighting that. Sure, Fed policymakers can take heart in the latest report in reaffirming a more neutral stance. However, what happens if the February figures are softer than expected? We will pretty much reverse course and run all of this back in its entirety.
Heading into the report yesterday, Fed funds futures were pointing to ~60 bps of rate cuts for this year with the first full 25 bps rate cut priced in for June. Now, we’re seeing ~53 bps of rate cuts priced in for the year with the first full 25 bps rate cut marked for July instead.
That being said, the odds of a June rate cut remain elevated at ~73% at the moment. So, that is not to say that it will be a sure thing to not see a rate cut in the first half of the year.
The market pricing above can easily shift and swing on coming data releases, that especially since there is still quite some time before we even get to the June meeting. But at least for now, it will put off any debate of the Fed needing to act much earlier than that.
If the labour market continues to follow the trend from last year, the report this week will be largely inconsequential down the road. It’s all about the larger trend at the end of the day. So, we’ll have to see if there is any further evidence that the weakness in jobs is easing.
As for the week itself, we’re not quite done yet. Today will be a bit less vibrant as we will only have the weekly initial jobless claims report. But come tomorrow, it will be the big one as we have the consumer price inflation report to deal with.
