The U.S. labor market looked provocatively robust today. Indeed, the unemployment rate ticked up 1 tenth of a point to 5.7% but that was largely because more people are re-entering the job market. The labor force actually expanded by 703,000 persons in January, a whopping huge number. The 257,000 new positions created last month couldn’t counter that. (Actually, as people perceive the hiring pace quicken, more will re-enter the chase.) Additionally, the prior two months’ jobs number was increased by 147,000, an even bigger sign that the expansion is steady, if not galloping quite yet.
Even more impressive was the upturn in wages. Wages rose 0.5%. That pace probably won’t continue, but even at half that rate, that means wages would increase by almost 3% in the coming months.
This throws a little gasoline on the Fed fire.
Some on the Federal Open Market Committee will argue that now is the time to increase the interest rate while the U.S. is at almost full recovery. The hawks have an almost tribal abhorrence of inflation, like honoring a taboo. The doves, on the other hand, will argue that this sort of growth will have to be seen for a number of months before a rise is even seriously discussed.
We’re still thinking that June is the fulcrum meeting. But, and this is going out on a limb, so try not to hold us to it, September looks like the most likely month for a rate rise, if the trajectory remains similar to what we saw today.
The dollar zoomed up today in reaction, and along with regular trading, that dented gold pretty deeply. Shortly before 4 PM in New York, gold is off not quite $28. The entire precious metals complex is off, as well. Silver is down 3%, platinum 2.25%, palladium off 1%.
Equities markets took the news badly as they worry about a rise in rates. The three American exchanges are off today between 0.55% and 0.70%. It seems counterintuitive, but the markets are sending a message to the Fed. “It’s not time, yet,” they are saying. They are also saying they want more easy money, but that’s what Wall Street generally wants.
So, where did all the money go? West Texas crude and Brent were both up, the former by 3%, the latter by 2.75%. So, there are oil bulls out and loose. But a lot of money fled to the sidelines to await further analysis of how the booming American economy will be dealt with by the Fed.
Wishing you as always, good trading,