US MARKET WRAP – 9 MAR 2018: Payrolls beat + wages miss = Goldilocks

* SNAPSHOT: For the week: SPX up, DXY flat, 10y T-Note futs flat, crude up.
* REAR VIEW: Payrolls beat but earnings growth eases. Trump to meet NK’s Kim in the coming months.
* AHEAD: Next week: US CPI, UK Spring Statement, SNB rate meeting , Norges Bank meeting, NZ GDP.

* US JOBS REPORT: Headline payrolls was a huge beat – the largest monthly gain in 18-months – but the pace of wage growth eased. Contrary to what other indicators have suggested about the tightness of the labour market, some analysts note that a headline beat of this magnitude questions the theory that the US is at full employment, particularly as the pace of payroll growth is picking up, while wage growth has only shown fragile signs of jumping higher. But with that said, there are reasons to be positive: the solid employment growth was combined with a rise in the workweek hours, which presents upside risks for income growth, analysts say. From a policy perspective, this report will have done less for the hawks than the January data (given easier wage growth), however, it is hard to be disappointed with such a robust pace of payroll additions.

* GEOPOLITICS: US President Trump plans to meet with North Korean dictator Kim Jong Un in the first face-to-face meeting between the two nations’ leaders, following NK’s earlier pledge in the week to pursue denuclearisation in exchange for regime safety. The encounter, Trump’s first major foreign policy move, could take place in a matter of months. Reportedly Trump will not impose any preconditions on the meeting, he has said that he wants to see “concrete steps.” The North Koreans, meanwhile, are said to have agreed to suspend nuclear tests before the meeting.

* FEDSPEAK: Fed’s George (Kansas, non-voter, hawk) said risks to the US economic outlook appear to be predominately to the upside, following fiscal stimulus. The Fed should continue to hike rates and carefully calibrate its policy to lean against a potential build-up of inflationary pressure or financial market imbalances, she said. Fed’s Evans (Chicago, non-voter, dove) suggest more caution was needed from the Fed, repeating his argument that the central bank could afford to wait until mid-year before hiking, and we could see two, three or even four hikes in the year. Fed’s Rosengren (Boston, non-voter, hawk) was more explicit, and is firmly in the four hikes camp.

* EQUITIES: SPX +1.7%, DJI +1.7%, Nasdaq Comp +1.8% // SECTORS: CONS DISC (XLY): +1.45%, CONS STAP (XLP): +0.50%, ENERGY (XLE): +1.88%, FINANCIALS (XLF): +2.33%, HEALTH CARE (XLV): +1.34%, INDUSTRIALS (XLI): +2.09%, MATERIALS (XLB): +1.70%, TECH (XLK): +1.92%, TELECOMS (XTL): -0.20%, UTLITIES (XLU): +1.3%. Major equity indices surged after the February employment situation report showed that headline payroll growth was solid, though easing average hourly wages hint that inflation pressures may not be so aggressive. The result was a “goldilocks,” friendly environment for stocks, and equities stayed at higher levels, with the EMINI rising to over 2780. In the background, risk was also supported by positive developments on the Korean peninsula, while the tariffs announced by the Trump administration on Thursday as certainly more benign than had been feared.

* CRUDE: WTI FUTURES SETTLE $1.92 HIGHER AT $62.04 PER BARREL; BRENT FUTURES SETTLE $1.88 HIGHER AT $65.49 PER BARREL. Non-oil specific factors were the driving force behind Friday’s bounce. With the risk backdrop already supported by deescalating tensions on the Korean peninsula, watered down trade wars, and then a huge non-farm payrolls headline beat boosted risk appetite, sending crude higher. That’s helped WTI close out the week with small gains, though still off last week’s highs above $64. There were some oil-specific factors: oil drillers cut rigs for the first time in seven weeks (by four rigs to 796), and Libya’s El Feel (70k BPD) remained shut according to reports. But bulls will still be questioning whether this is enough to build a fresh bullish case, some have suggested. While some expect seasonal factors to offer some support, next week we are likely to get a dose of jawboning from OPEC (it releases its monthly report on Wednesday, and the IEA releases its report on Thursday). But the broader narrative remains dominated by increasing US supply amid some suggestions that global demand has eased (for instance, in this week’s EIA report).  

* TREASURIES: 10-YEAR T-NOTE FUTURES SETTLED 4+ TICKS LOWER AT 120-21. Bear-steepening was the theme for Treasuries, but the yields were only 1-3bps higher across the curve. Perhaps the most interesting thing about the TPLEX today was that, despite equity traders seeing the dovish side of the employment report, the bond traders didn’t entirely agree, and the March T-Note fut settled around 4 ticks lower than pre-NFP levels.

* USD: DXY is flat on the week, trading around 90.10, though finishes the Friday down. It was a choppy pre-market, with the buck snapping higher on the headline payroll beat (313k was above the most optimistic forecast), though tumbled back down after average hourly earnings data fell to 2.6% YY from a revised down 2.8%. Meanwhile, specs have raised their long USD bets to a four-week high (week ending 6/Mar), CFTC/Reuters reported.

* CAD: The Loonie closes out the week near highs against the US dollar slightly above 1.28; CAD has broken through the weekly range (1.2850 to 1.3025 this week) after the jobs report data provided traders relief that the sharp declines seen in January have not been repeated in February (slightly less jobs added, but unemployment slipped while participation was stable). There is only a slim chance of a hike at the April BOC, so the focus remains on the NAFTA trade negotiations, which have seemingly tuned for the better for Canada and Mexico.

* EUR action was dictated by action from the USD side of the pair, the net effect on the day was neutral, with EUR closing out the week near 1.23, slightly lower on the week. It was similar for the JPY, which has been lingering around the 106.80 level after a dovish BOJ overnight, moving in a thin range through European and US trade. GBP, meanwhile, is about 0.3% stronger on the day against the EUR and the USD.