Markets Volatile After Jobs Report

It is the First Friday of the month and again, the Jobs report did not fail us with yet another volatile session that we have embarked on so far today.  Interests are spiking on this very strong October employment report. This report is as strong as Sept was weak - the average job growth in the last three months, +180K - when seen from a wider perspective job growth in October is not quite as much shock as the October data alone. Employment in October was led by the biggest gain in retail payrolls since November, the strongest hiring in construction in eight months and a pickup at temporary-help agencies.

The reaction to the strong report, as I noted yesterday, the Fed will make the move on interest rates in December – which I still feel would not happen, but this report makes me wonder if the pressure will succumb to the change. Trading in FF futures markets after the report jumped to a 72% probability from 52% immediately prior to the report. Certainly the debate will continue but I believe this gives the Fed cover to do what the Fed should have done last spring before the March report – now it looks unlikely the Fed will let this opportunity pass as it did earlier this year. Yes, there is the November employment report yet and there are numerous other economic measurements between now and the December meeting - but it is highly unlikely now that the economy will rollover in the next few weeks. It will take a complete reversal of economic performance and job gains now for the Fed to hold off, two reasons - the Fed wants to do it badly, and the Fed’s reputation is waning. Increasing concerns the Fed is letting the markets dictate instead of the Fed controlling monetary policy.

Currently at 11:00AM the 10yr Treasury is at 2.33% and a negative 48BPS on the FNMA 30yr MBS pricing.  We have the Equity markets in a momentary quandary now with this employment report and the now likely increase of 0.25% in the FF rate in December. The interest rate markets, generally the more logical of the two markets, have been moving toward a Fed move for the last two weeks. Will a 0.25% increase in rates have a negative impact on the economy?

Employment data generally sets off volatility, no matter what direction the data is from estimates. Employment data over the last few months has been exceptionally volatile and unpredictable. The dollar is increasing against the yen and euro currency today, as it has been doing for the last week. A stronger dollar not good for US multi-national companies, US exports will suffer. The US increasing interest rates while the ECB and China adding stimulus and lowering rates will have a drag on the US economy, the only question is by how much.

Still floating?  You might want to wait till the dust settles and keep your hand on the trigger if they get even worse than they are now.