In my view January’s labor report was strong in many dimensions. Non-farm payrolls rose by greater amount in January than expected. More importantly the December’s and November’s were revised higher. The unemployment rate did rise to 5.7% from 5.6% but this was the result of more workers reentering the workforce. The pivotal labor participation rate (LPR) rose to 62.9% from 62.7%.
Average hourly earnings jumped 0.5%, the most since November 2008. They are up 2.2% over the past year, the biggest advance since August.
Treasuries traded lower on the news while crude and the dollar traded higher. Philadelphia Fed President Plosser stated Friday the time to raise interest rates is now. If such did occur, I could argue yesterday’s action in oil, currency and treasuries would be the harbinger of things to come.
Commodities are poised for their greatest gains in a year as the oil dominated CRB Commodity Index rose about 9.1% for the week.
Commodities have been crushed and are very underweighted thus suggesting any sustained buying will cause a sharp rise in this asset group. Will the trade 90 days hence is short treasuries and go long commodities, the inverse of the last 18 months?
It can get really ugly in the treasury market given the appearance that everyonealready owns treasuries, thus inferring who is left to buy when selling commences?
Equities traded lower on the news. As mentioned many times, historically the S & P 500 declines between 7% and 10% when monetary policy is tightened. History then states in the seven tightening moves since 1971, the S & P is about 11% higher about twenty one months following the first interest rate hike.
What will happen this week? The economic calendar is comprised of several significance releases including several sentiment surveys, retail sales, import prices, inventory levels and weekly jobless claims.
Last night the foreign markets were down. London was down 0.68%, Paris down 1.05% and Frankfurt down 1.46%. Japan was up 0.36% and Hang Sang down 0.64%.
The Dow should open moderately lower as Greece’s prime minister reiterated pledges opposing the nation’s bailout. And then there is the Ukraine. The 10-year is up 11/32 to yield 1.92%. Oil is up about $1/barrel.
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