Payrolls Reaction

*U.S. AUG. PAYROLLS INCREASE 235,000; EST. 732,500

*U.S. AUG. UNEMPLOYMENT RATE FALLS TO 5.2% VS 5.4%

*U.S. AUG. AVERAGE HOURLY EARNINGS RISE 0.6% M/M; EST. 0.3%

*US Jul Payrolls Revised to +1.053M; Jun Revised to +962K

Highlights of the jobs report above. For me it has been a very interesting one which is difficult to pin down. The wages story is interesting and perhaps maybe part of what has prompted the 10y yield to rise significantly higher. 

That said, the short-end of the curve (the 2y yield) has dropped a smidge, so we have a steeper yield curve - seemingly implying the Fed is happy to run the economy hot.  

Equities didn’t really know what to make of it, with the NASDAQ spiking higher and then retracing all within about 10 minutes. 

Also interesting was the revision higher for the July number given the lower August number - clearly something has really taken the steam out of the jobs recovery. That said, looking at the 3 month moving average of jobs growth, we comes out at 750k, which is definitely not a bad number. 

The unemployment rate dropped to 5.2% as well, so clearly this is part of the reason for the befuddlement of the markets (see earlier primer for why). 

Gold moves incredibly interesting, initial massive pop higher on the back of the weak number, and then as the market digested the report a little more basically retraced back below the key resistance levels to USD1820, up slightly on the day but way off the highs. Just as I finished typing that gold took another lift again. 

August basically saw 0 net jobs in hospitality and retail etc which is quite shocking given the stage of the recovery. This seems to be the delta impact and as this eases the momentum should still be there to drive a decent recovery. 

NET NET: 

This report is complicated and confusing. The stock market and bond market don't really know how to digest it. Revisions higher show strength in the previous month, but weakness now from Delta variant. 

The Fed is looking to be data dependent, and on the back of this I reckon they have to hold out for one more Jobs report before announcing a taper. The Fed is therefore at risk of being like a greedy child "just one more sweet" each time, and then gorging too far. 

Still, what do I know?

UPDATE: 

Saw a couple of interesting charts on BBG TV following payrolls below. You all know I'v been banging on about seasonal adjustment and the distortions it has been causing, well here you have it in chart form. 

Below is my argument that the Fed still has room to remain on hold - long way from potential 

Expectations for a 23 Jan hike dropped in the immediate aftermath of the report. Much has retraced now though.