The US Non-Farm Payrolls report was a blockbuster, and not only in the headline. It’s been a while seen we’ve seen something so convincing.
Here are 3 positive takes from the report, which certainly justify the dollar rally that followed. But is it enough for June? Probably not. Here are three reasons for the Fed to wait a bit more.
- The job gains: Better than expected gain in jobs + positive revisions, including that nasty month of March.
- Salaries: Wages rise more than expected in both monthly and yearly figures – the quicker advance in the Average Hourly Earnings finally meets figures seen in the ECI report
- Wider employment measures: Both the participation rate and the employment to population ratio, both wider measures of employment, are both rising.
So why isn’t it enough for a hike in June?
- It’s only one report: Even with revisions, March saw only 119K jobs gained. That now seems to be a one off on its own, but a 2014 like spring bounce isn’t guaranteed either. More evidence of a Q2 recovery is needed.
- Dollar strength: The strength of the greenback in late 2014 and early 2015 has already triggered some comments from the Fed. While the US economy is still a relatively closed one, terribly weak exports could be the tipping point that could prevent a self-sustaining recovery.
- Dovish Fed: The Fed members and Yellen in particular are dovish. “If in doubt, stay out” certainly applies in this case. They would rather be a bit late with hikes and see wage inflation than find themselves backtracking.
So, September seems more reasonable. If this analysis is wrong and the Fed hikes in June, this dollar rally would be nothing in comparison to what we could see in June.
In this week’s podcast, we explain why EUR rallied on Draghi, what’s next, discuss oil and gas, run through the Plus500 story and preview next week’s events.
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