The US Non-Farm Payroll report

While most European markets are closed for the traditional Easter Monday holiday, elsewhere the week started positively, with all major Asian equity indexes closing the overnight session in gain territory.

The main news of the short week ended last Thursday was once again related to the closely watched release of US Non-Farm Payroll, which, according to most analysts, was going to provide some indications on whether the Federal Reserve is “falling behind the curve” and the economy is actually doing better than the Central Bank had estimated.

The jobs report released last week indicated that, in March, the US economy added 126,000 new jobs, the least since December 2013, while also revising the previous job report down by 69,000 units. All bullish investors that were hoping in another above expectations’ number were quite disappointed. The lower than expected jobs report seems to confirm the thesis of some economists that believe the labor market will not be able to keep up the positive pace recorded in the previous three months. Although not in complete agreement with such stance, I expect investors to continue to monitor every single economic data due in the coming weeks, on the lookout for additional confirmations that the labor market, and perhaps the entire US economy, is indeed cooling off.

While the disappointing labor data is seen by some investors as a proof that the FED may have been right in believing that the economy is somehow slowing down and that it was still premature to increase interest rates, other analysts still think that the latest job report was highly impacted by temporary negative effects such as bad weather and seasonal adjustments. Although I believe it is too early to decisively assess whether the March report was just a “bump on the road” or indeed a declining trend, I also agree with analysts that see the latest job data as a sign that the US economy is starting to feel the negative impact of a prolonged stronger dollar.

Following the jobs data release, the US currency fell against all major counterparties last week, with the US Dollar Index closing around the 96.70 level, after surging as much as 103.30 at the end of February.

Another important issue highlighted by the report is that the benefits of low oil prices are starting to be counter-balanced by an increasing number of layoffs in the energy sector, putting pressure on unemployment and consumer spending expectations. In fact, if the energy sector should continue to cut its work force, we may continue to see weak consumer spending, with people preferring to keep any extra cash at the bank rather than using it for additional purchases. US consumers have, in my opinion, not yet channeled the entire extra disposable income into the economy, and a cooling labor market may further slowdown the deployment of extra funds generated by lower fuel prices.

The question most investors are going to ask now is: “will the latest job report complicate further the Federal Reserve attempt to raise interest rates, or was this already priced in in the FOMC’s decision to push any rate hike towards the end of the year?”

While this is the million dollar question of the hour, surely the disappointing job report has prompted investors to continue buying US Treasuries, whose prices has once again increased, pushing the yield of the 10 year Treasuries Benchmark to fall 12 basis points to 1.84%.

It will also be interesting to see how equity markets react to the jobs data released last week, and see whether investors will consider it a temporary adjustment, or if they will start to take some money of the table putting down pressures on stocks, which may extend the losses recorded over the last trading sessions.