In yesterday’s NFP Preview report, we highlighted the unusual circumstances surrounding this month’s release, stating, “many traders will be out of the office for Good Friday, meaning that there will be less liquidity than usual. Therefore, if the report comes out near the consensus estimate, the market could quickly grind to a halt as traders look ahead to the Easter holiday; on the other hand, if we see a surprising reading, the market could still move more dramatically than usual.” As it turned out, we definitely got a shocker of a report.
The March NFP report showed a disappointing growth of just 126k jobs, the lowest reading since December 2013. Adding insult to injury, the two most recent NFP reports were revised down by another 69k jobs, bringing the 3-month moving average back below 200k to just 197k net new jobs per month. The glass-half-full crowd is pointing to the modest uptick in average hourly earnings (to 0.3% m/m from 0.2% expected), as well as the stable 5.5% unemployment rate, but these small bullish signs have been completely overwhelmed by the staggering miss in headline job creation.
The Federal Reserve prides itself on not overreacting to individual data points, but it’s hard to see how the central bank could even consider raising interest rates in June after such a weak report. Unless subsequent revisions shows this report is a one-off aberration due to weather, the Fed may now be looking more realistically at raising interest rates in the September-December time period.
Today’s report shows that the labor market may finally be “catching down” to the recent weakness in the rest US economy, and The initial market reaction reflects the market’s expectation for a “lower for longer” Fed, with the dollar dropping sharply across the board. As we go to press, EURUSD has surged all the way to above 1.10 to within striking distance of its 1-month high at 1.1050, while USDJPY has sliced through 119.00 and may now approach its 2-month low near 118.30. While global stock markets are closed for the Good Friday holiday, we’ve seen a dramatic move in the fixed income markets, with the US 10-year yield collapsing by 11bps to just 1.80%.
The key level to watch moving forward will be around 96.00 in the dollar index, which represents key previous support and the 50-day MA: if that support level gives way, the prolonged dollar uptrend may be due for a deeper retracement.