Volatile Markets React To Employment and Political Developments

Today’s North American employment numbers were mixed. US nonfarm payrolls increased more than expected (303K vs street 200K, previous revised down by 5K to 270K), and average hourly earnings fell to 4.1% from 4.3% as expected, overall indicative of a strong economy and decreasing inflation pressures. Canada jobs, however, were surprisingly negative (-2K vs street +25K) and average hourly wages ticked up (5.0% vs previous 4.9%), a sign of a softening economy and increasing inflation pressures, or Stagflation.

Before the employment numbers, US index futures had been on the rise, bouncing back form yesterday’s big afternoon selloff that ended with US indices giving up morning gain to finish down 1.2%-1.4%. That selloff was sparked by two events that could have ripple effects in the markets in the coming days.

First, comments from US Secretary of State Blinken on Ukraine potentially joining NATO, combined with growing tensions in the Middle East reminded complacent investors of the significant political risks out there. Blinken’s comments sparked rallies in the price of Crude Oil and defense stocks, while putting pressure on the overall market.

Second, Minneapolis Fed President Kashkari opened the door to the idea that the Fed may not cut interest rates at all this year, adding to the “higher for longer” party line in a meaningful way. Today’s robust Nonfarm Payrolls report has added to the case that the Fed is under no pressure to start cutting rates any time soon as the US economy remains robust. Since the numbers came out, bulls and bears have been battling over the implications of this not only for the Fed but also for the overall business environment with earnings season starting a week from today.

The US 10-year treasury note yield has climbed back up above 4.35% this morning. US index futures are up 0.1%-0.2%. Over in Europe, the Dax is down 1.4% and the FTSE is down 0.9%, catching up to yesterday’s US afternoon retreat. Following on from yesterday’s sudden reduction in risk appetite, cryptocurrencies are getting hammered with Bitcoin is down 3.3% and Ether down 4.0%. The US Dollar has been climbing, gaining 0.1% against Gold, 0.2% against the Euro and 0.5% against the Canadian Dollar. In commodity action, Crude Oil is steady, consolidating yesterday’s gains, Natural Gas is up 1.0% and Copper is down 0.8%.

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