Market Confused By 'Goldilocks' Jobs Data: Fed's "Tightening Cycle May Not Be Over"
Update (0925ET): The unwind of the unwind of the kneejerk reaction is now in play: USD up, gold down; stocks and bonds (prices) down...
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Flat wage growth (hotter than expected MoM), lower unemployment rate (good news is bad news), more jobs added (good news is bad news)... but the narrative-delivers claim "goldilocks".
This looks anything but goldilocks and the kneejerk reactions agreed with rates and the dollar higher (hawkish) and stocks lower.
Wall Street is also not buying the Goldilocks spin:
BMO Capital Markets’ Ian Lyngen:
“Overall, it was a strong report that has predictably reduced the odds of a March cut to <50% territory.”
FHN’s Chris Low:
“The employment report suggests emerging weakness apparent in October was primarily a reflection of strike activity rather than a sudden economic chill. Bear in mind, October’s exaggerated weakness is likely mirrored by an equal-and-opposite temporary strength reflecting the post-strike bounce. Nevertheless, three-month average payroll rise of 204,000 is respectable. That it was confirmed by a better-than-expected household survey is just icing on the cake.”
Dominic Konstam, head of macro strategy at Mizuho Securities, says:
“Clearly the early Fed easing cycle risk is put back and the labor market is slowing, is well off strength in early 2023, but not the extreme weakness seen in October.”
Deutsche Bank’s Alan Ruskin says:
“The data definitely works with rhetoric that the tightening cycle may not be over, even if this is regarded as unlikely, and that it is premature for officials to be talking about easing. In short, the data extends the likelihood of a longer than usual plateau in rates.”
Rubeela Farooqi, chief US economist at High Frequency Economics:
“In terms of Fed policy, we do not think these data change the outlook; rates are at a peak and the Fed’s next move will be a rate cut, likely by the middle of next year.”
Neil Dutta of Renaissance Macro Research says:
“The US labor markets are fine. November’s employment figures were firmer than expected and as a result, bond yields are rising. (People saying recession need to have their heads examined).
“However, in our view, the labor market is not the primary driver for monetary policy right now. Indeed, there is an asymmetry in the Fed’s policy reaction function: stronger employment will not push them away from a cut as much as weaker inflation will push them towards one. The solid economy puts a ceiling on how many cuts we’ll get, but it will not stop cuts altogether. That’s what a recalibration of policy is about.”
Mohamed El-Erian, Allianz’s chief economic adviser and a Bloomberg Opinion columnist, says on Bloomberg TV:
“That was good news for the economy, and further confirmation that the US has an exceptional labor market and an exceptional economy.
You saw significant job growth, higher wage growth and higher labor participation,” he says. “The market has to think very carefully about the amount of cuts next year.”
And sure enough, that initial kneejerk has basically all been unwound now.
Dollar is down...
Gold is reversing higher,..
Bond yields are falling back from the kneejerk higher...
The payrolls print was right in the middle of Goldman Sachs' sweet-spot for stocks and they are still holding on to post-payrolls gains (though only Small Caps are in the green)...
The odds of a rate-cut in March dropped from around 60% to around 50%...
Still a long way to go for these narratives to be rewritten today.
