Morning Report: Payrolls disappoint

Vital Statistics:

 LastChange
S&P futures4,6841.2
Oil (WTI)79.450.11
10 year government bond yield 1.75%
30 year fixed rate mortgage 3.47%

Stocks are flattish after a disappointing payroll number. Bonds and MBS are down small. Global bond yields are rising as well, with the German Bund at nearly a 3-year high and threatening to crawl out of negative territory.

The jobs report was a bit of a mixed, bag, with payrolls coming in below 200k, which was about half of the expected number, and way lower than the 800k reported by ADP. On the bright side, the unemployment rate fell to 3.9%.

The labor force participation rate was steady at 61.9% and the employment-population ratio ticked up 0.2% to 59.5%. Average hourly earnings were up 4.7% YOY. So overall the internals of the report were good. The labor market is doing well, albeit we have fewer employed than before the pandemic.

The FOMC minutes touched on what might be going on – a lot of job losses are probably from early retirements. COVID’s mortality rate is a function of age, and perhaps many people in their early 60s decided to stop working instead of taking the risk of getting sick at the workplace.

The market is still digesting the FOMC minutes and the fact that the Fed is going to be a lot more hawkish. The change in sentiment is most evident in the March Fed Funds Futures, which are now predicting a 70% chance of a 25 basis point hike at the March meeting. A week ago, the market was predicting a a tossup, so this is a big shift.

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