So I thought investors would take today’s employment data in their stride – especially a payroll number which was only above the consensus expectation by 9,000 jobs. On top of that, this improvement was cancelled out by the Unemployment Rate which ticked up to 5.0% from 4.9%. But it was the increase in Average Hourly Earnings which seems to have galvanised traders and their algo-driven black boxes. Earnings rose 0.3% month-on-month, more than the +0.2% rate expected. As far as traders are concerned this is inflationary (quite correct as higher wages should feed straight through to consumption). But I thought that an uptick here would be positive for risk assets as Janet Yellen made it clear that the Fed has no intention of tightening monetary policy over the next few months in response. In fact, the way I read her speech is that the Fed’s 2% inflation target isn’t really an issue anymore.
Anyway, that’s not how the markets are reading this today. The dollar is firmer while oil, equities, gold and silver are taking a pounding. The Fed is getting the inflation it so badly wished for, but now investors expect the central bank to step in and raise rates to curb it. I just don’t see that happening.
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