JOBS REPORT TO THE RESCUE

Stocks opened higher this morning after the Bureau of Labor Statistics released its March jobs report (see below). The Dow is currently up 34 pts and the SPX is up .38%. Nine of eleven major market sectors are trading higher, led by energy (+1.5%) and healthcare (+.8%). The communications services sector is flat. Small-caps and emerging markets equities are outperforming today. The US dollar is slightly higher in early trading, and commodities are mixed. WTI crude oil climbed back to $62.60/barrel. Bonds initially sold off after the jobs report, but quickly recovered. Right after the news broke, the 10-year Treasury yield climbed to 2.55%, but is now trading back to 2.50%. Yields have picked up a bit over the past week, commensurate with modest improvement in the economic outlook. The New York Federal Reserve’s economic growth model now predicts 1.4% growth for the first quarter vs. .9% at the beginning of March. The Atlanta Fed’s forecast is calling for 2% growth, up from just .5% a month ago. But make no mistake, yields are still very low and the yield curve is very flat. Those aren’t typically conditions associated with a strong growth outlook.

By the way, President Trump today called for the Federal Reserve to lower interest rates and go back to quantitative easing. Presumably, the goal would be to stimulate economic growth. His administration has set a goal for 3% GDP growth, which most economists see as unrealistically high. In an opinion piece titled “Trump to Fed: Turn on the Economic Afterburners,” Bloomberg characterizes the president’s suggestion as “a little over the top,” and expects the Fed to throw it into the “circular filing cabinet.”

The US economy generated a much better than expected 196,000 net new jobs in March. In addition, February’s pathetic 20,000 job tally was revised up too 33,000. The unemployment rate held steady at 3.8%, which is historically very low. The under-employment rate—including discouraged and part-time workers looking for full-time work—held steady at 7.3%, an 18-year low. What’s more, wage inflation didn’t spike as some feared. Average hourly earnings for US workers rose 3.2% form year-ago levels vs. 3.4% expected. So this is rather Goldilocks-ish. The labor market is strong enough to give us some confidence in the US economy, but not strong enough to drive inflation that might tempt the Federal Reserve to resume interest rate hikes.

Both sides indicate progress in US-China trade negotiations. This morning, President Trump noted “big success” and hinted at a new timetable for reaching a deal. “We’ll know over the next four weeks” whether a deal can be achieved. Meanwhile, Chinese Vice Premier Liu He said that they had “reached new consensus on such important issues as the text” of a possible agreement. Mr. Trump explained that the two side have yet to agree on an enforcement mechanism to protect intellectual property, and also the level of certain trade tariffs.


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