353,000 jobs and no March cut

The January employment report delivered an absolute shock to the macro consensus, as non-farm payrolls surged by an eye-watering 353,000 jobs, while December’s figures were revised sharply higher. The blockbuster print demolished Wall Street’s hopes for an early Federal Reserve interest rate cut in March, sending sovereign yields soaring across the curve.

The March Cut Obliteration

With the unemployment rate pinned at 3.7 per cent and average hourly earnings expanding at an annualized 0.6 per cent month-on-month, the domestic economy is displaying zero signs of cyclical fatigue. The Federal Reserve cannot justify easing policy when the labor market is generating hundreds of thousands of jobs and wage pressure is accelerating. Rate-cut optimists must accept that the first easing step has been pushed back to summer.

A blowout 353,000 payroll print completely shattered the market’s March rate-cut narrative, forcing fixed-income investors to accept that a booming labor market precludes early monetary easing.