Top of the Morning: January Jobs report, week ahead
The US labor market continues to exhibit resilience, as evidenced by the January employment report, which recorded a non-farm payroll increase of 143,000—slightly below expectations, yet accompanied by upward revisions for prior months. According to Brian Rose from UBS Chief Investment Office, the three-month moving average of job growth stands at 237,000, alongside a declining unemployment rate at 4% and a notable rise in hourly earnings of 0.5%. This data suggests that the Federal Reserve is not likely to consider rate cuts in the near term, reinforcing the view that risks to the labor market have lessened. With no major events on the calendar this month, the focus will remain on how these labor metrics shape the Fed’s future policy decisions, as outlined in the commentary from UBS .
What the desk is arguing
The desk interprets the January jobs report as a strong confirmation of the US economy's labor market health, potentially delaying any Federal Reserve rate cuts. Per the full note , while the headline non-farm payroll figures fell short of expectations, the details—including an increasing three-month moving average—indicate ongoing strength.
The steady job creation combined with a low unemployment rate suggests stability in labor dynamics, with average hourly earnings rising significantly. These factors collectively diminish the Fed's incentive to adjust interest rates downwards at this juncture.
Where it sits in our coverage
Our consensus target for the related currencies is 1.075, within a range of 1.04 to 1.12. Specific firm targets include: - jpmorgan: 1.10 - bofa: 1.04
This outlook aligns with jpmorgan, which underscores a similarly optimistic view on labor market resilience, placing its target toward the upper end of the spread.
How other firms see it
Several firms like jpmorgan and citi share a bullish outlook on the USD based on the labor data, while bofa adopts a bearish stance due to concerns about wage inflation. This divergence indicates varied interpretations of the jobs data's implications for monetary policy.
Relevant to this context, currency pairs like USD/JPY and EUR/USD will likely reflect shifts as the Fed navigates the implications of labor market conditions on interest rates, making them worth monitoring closely.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01January jobs report indicated slower payroll growth but upward revisions boost overall perception of labor market health.
- 02Unemployment rate drops to 4%, while average hourly earnings rise by 0.5%, providing a cushion against potential rate cuts.
- 03Federal Reserve likely maintains current rates amid a strong labor outlook, countering recession fears.
- 04Market participants should monitor USD-related pairs as labor insights influence Fed's policy trajectory.
Market implications
Watch for USD strength, particularly against JPY, as labor market resilience boosts confidence in the dollar. The current levels and the potential for further Fed policy signals will be pivotal in shaping market moves in the coming weeks.
Risks to this view
A rapid increase in wage inflation or unexpected labor market deterioration could trigger a Fed pivot, leading to a reconsideration of existing rate strategies. Such developments would challenge the current optimistic outlook for the dollar.
Hi everyone, Siobhan Chapman here, and welcome to Top of the Morning on the UBS Market Miz podcast channel. It's Friday morning, which means it's time for the Week in Review and Preview conversation, where my guests will recap how markets have performed over the past few sessions and previews you can expect in the week ahead. Today's conversation will primarily focus on the January employment report, as well as the current health of the U.S. labor market.
Joining us for the conversation, I'm glad to welcome back Brian Rose with the UBS Chief Investment Office. Brian, welcome. We're happy to have you.
Thanks, Siobhan. Good morning, everyone. Perfect.
So let's get started. How did the January employment data come in relative to your expectations, and how would you characterize the current health of the U.S. labor market? So the headline non-farm payrolls, which is what markets tend to focus on, that was a bit weaker than expected, 143,000 in January.
But if you look at the overall, the details of the report, this was actually a very strong report. There were upper divisions to payrolls in November and December. If you take the three-month moving average, it's 237,000 per month, which is a big number.
The unemployment rate came down to 4% in January, and the average hourly earnings were up 0.5% month-to-month, which is more than expected, the biggest in a year. And you put it together, you have strong job growth and a low unemployment rate, and earnings are probably on the upside. So that is good news in terms of the state of the labor market, and gives the Fed no reason to even think about cutting rates at this point.
Their recent rhetoric has been that the downside risks to the labor market appear to have diminished, and this is just reinforcing that view. And one other thing I'll mention is that we had annual benchmark revisions released today, especially there was a huge upward revision to the estimates for the number of immigrants, so the immigrant population, also the number of immigrants working. And on the new estimates, it seems that around 70% of the job growth last year was driven by immigrant labor.
So something to keep in mind, given that we have an acceleration of deportations and also a big slowdown in the number of immigrants coming into the country. So the big driver of the labor supply is going to not see much growth this year, and this, I think, will tend to give us a restricted labor supply going forward this year. Thank you so much for that overview, Brian.
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