Published Date 7/8/2022
June unemployment rate remained at 3.6% as was thought. Non-farm jobs, expected at 270K increased by 372K; private jobs were estimated at 228K, increased 381K. The labor participation rate expected unchanged from may at 62.3% declined to 62.2%. Average hourly earnings +0.3% m/m as expected but yr./yr. increased to 5.1% against forecasts of 5.0%.
The stronger than expected June employment data adds more credence that the Fed will increase the FF rate by 75 bps at the July FOMC meeting. Until this morning’s report there was a divide in markets whether the Fed would increase just 50 bps as other data has been tilting to a softening economy forcing the Fed to back off its very aggressive push to crush inflation. The 50 bp increase idea driven by equity markets with Wall Street firms, money managers, hedge funds never want to admit anything negative until there is no other choice; always optimists as best they can be under any circumstances.
Starting with Fed chair Powell and supported by almost all Fed officials, he has made it clear that the Fed isn’t going to buckle on increasing rates until the 2.0% inflation level is in sight. The Fed and other central banks made mistakes about inflation a year ago and all central banks are moving to tamp it down. Recently, the optimists chose to believe the Fed would cave if the economic outlook softened more than expected. Today’s very strong employment report provides the Fed with some relief about any potential criticism. The data will likely keep Federal Reserve policy makers set on raising interest rates aggressively to curb red-hot inflation by reducing demand among households and businesses. A drop in the labor participation rate corroborates many complaints about worker shortages and an inability for employers to fill millions of open positions — a recipe for sustained wage pressures. Swaps traders increased to about 96% the probability of the Fed lifting rates this month by 75 basis points from about 93% before the data.
Stock indexes slightly weaker this morning; on one hand the very strong job market is encouraging, on the other hand higher interest rates are seen as a drag on the economy.
At 9:30 am the DJIA opened -23, NASDAQ -104, S&P -13. 10 yr. note 3.05% +5 bps. FNMA 4.5 30 ye coupon -33 bps and -33 bps from 9:30 am yesterday.
At 3 pm May consumer credit is expected +$31.9B from $38.0B in April.
Not looking for any additional selling today. Next week new inflation data will be released on Wednesday and Thursday, June CPI and June PPI. Already this morning MBS prices at 10 am have improved, down 16 bps on the day, the 10 holding at 3.05%.
Source: TBWS
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