Top of the Morning: April Jobs Report, Q1 GDP, & the week ahead
The desk interprets the recent U.S. jobs report and GDP data as signaling a well-balanced labor market, which could support the Fed's cautious approach to monetary policy. Per the full note from UBS, the creation of 177,000 jobs in April surpassed expectations, although downward revisions of prior data temper this optimism. With the unemployment rate steady at 4.2% and job openings closely matching unemployed workers at 7.19 million, the labor market remains robust but controlled, which may influence the Fed's future rate decisions.
What the desk is arguing
The desk believes that the U.S. labor market data indicate stability and support for a continuation of current Fed policies. According to the UBS report, although April’s job increase was encouraging, downward revisions from prior months could suggest volatility beneath the surface of a seemingly strong report.
The latest figures detail an employment cost index rise of 0.9% and an unemployment rate holding steady, which equates to effective wage growth management without overheating. Such conditions point to a likely environment where the Fed may remain on hold regarding rate hikes, balancing growth with inflation.
Where it sits in our coverage
Our consensus target for USD pairs aligns at 1.075 for EUR/USD, with a range stretching from 1.04 to 1.12. Notably, jpmorgan sets a higher target of 1.10, while bofa anticipates a more conservative 1.04.
The desk's outlook reflects optimism in the upper bound of the general target range, arguing a strong potential for EUR/USD to inch higher based on solid labor market fundamentals.
How other firms see it
Aligned views come from firms like jpmorgan, who see a bullish trend, while bofa holds a more cautious perspective that could place downward pressure on the pair.
The interaction between this employment data and central bank expectations will likely influence pairs like EUR/USD and USD/JPY, particularly in the context of upcoming Fed statements and economic outlook revisions.
What the calendar says
With no significant events on the upcoming calendar, attention may remain on market reactions to the recent jobs data and any comments from Fed officials that could further clarify their monetary policy stance.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01April jobs report indicates strong but controlled labor market growth.
- 02Unemployment rate holding at 4.2% suggests stability.
- 03Fed may take a cautious approach following these labor figures.
- 04Average hourly wage growth remains subdued, mitigating inflation concerns.
Market implications
Traders should keep an eye on EUR/USD around the 1.075 level, as perceptions of U.S. labor market strength could lead to upward movement. Any upcoming Fed commentary on the labor market could serve as a catalyst for volatility in the currency pair.
Risks to this view
A sudden rise in inflation data or unexpected comments from Fed officials supporting aggressive rate hikes could reverse the bullish sentiment around the USD. Additionally, a significant drop in job openings below current levels may signal a cooling labor market and shift trader sentiment.
Hi, everyone. Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel.
It is Friday morning, which means it's time for the Week in Review and Preview conversation. Today coincides with Jobs Friday. That means we do have Senior Economist Americas from the UBS Chief Investment Office, Brian Rose, joining us to provide some thoughts, reflections on the April employment report, among some other timely topics.
With that, Brian, thank you for dropping by Top of the Morning to spend some time today with our listeners and our clients. It's great to have you on the podcast, as always. Let's jump right into it.
I know many of us were eagerly awaiting the release of the latest jobs data. So what are your overall thoughts on the results, and how would you characterize the current health of the U.S. labor market? So overall, the report was another solid month of data.
We had the headline non-comparables rising by 177,000, which was well above consensus, but there were down revisions the prior two months, totaling 58,000. So if you take away those downward revisions, more or less in line with the consensus expectations, the unemployment rate held steady at 4.2%, and the average hourly earnings were a little bit on the soft side, rising only a two-tenths month over month. Now, earlier in the week, we had other labor-related data.
The employment cost index rose by nine-tenths of a quarter in the first quarter. That's the same as fourth quarter last year. And we had the job openings falling in March, down to 7.19 million.
That's the lowest since December 2020. But if you compare it to this morning's data, there was 7.17 million unemployed workers, and again, 7.19 million openings. So basically, one opening for every unemployed worker.
And if you look in big picture, the labor market is well-balanced. We're near full employment. Wages are rising at a solid pace, but not so fast that you have to worry about it being a source of inflationary pressure.
So really kind of a Goldilocks situation in the labor market, so far so good. But of course, there are worries about the outlook, especially given all the uncertainty. There is a fear that layoffs might pick up, and also immigrant labor supply, I think, will start to really be felt in the second half of the year.
So again, so far so good, but there are some worries about what will happen in the month ahead. Thank you, Brian. So outside of the jobs report, it was a fairly eventful week for economic data releases.
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