US adds 199k jobs in December, missing estimates

The US economy added 199,000 jobs in December, missing analyst estimates of an 450,000 increase in Non-Farm Payrolls.

The dollar fell in an immediate market reaction to a report that eluded to a weaker US jobs market than previously expected. The miss also sent global equities lower in the wake of the announcement, although there was only minor selling initially, the drop accelerated after the US session began.

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The tepid initial reaction to report could be attributed to the mixed nature of readings including wages and the unemployment rate.

Delving deeper into the figures, the unemployment rate fell to 3.9% vs expectations of 4.2% suggesting underlying strength in the US jobs market, despite a miss of the headlines jobs numbers.

Interest Rate Hike

Today’s release is particularly important for markets due to recent comments from the Federal Reserve on the pace of rate hikes through 2022.

The Federal Reserve are monitoring economic data as they move towards the first rate hike since the beginning of the pandemic.

“The FOMC could begin increasing the policy rate as early as the March meeting in order to be in a better position to control inflation,” said Federal Reserve Bank of St. Louis President James Bullard early in the week.

It is unlikely Friday’s jobs number will change the course of the Fed and markets should expect a rate hike in the very near future, possibly the March meeting highlighted by Bullard.

Although markets were unfazed by the Non-Farm Payrolls miss, equities reacted negatively to the prospect of rate hike earlier this week. US equity indices fell, driven by a sell off in tech stocks, following hints that Fed were ready to move on rates.

“The realisation has dawned on investors that the drug of cheap money is set to be withdrawn a lot sooner than first forecast. The minutes of the latest Federal Reserve meeting indicated the likelihood of an earlier rate rise in 2022, and the starting gun being fired more quickly on a race to offload bonds from the bank’s balance sheet and this data will bolster these expectations,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

However, the drop in US indices such as the Dow Jones and S&P 500 may not reflect a complete souring of sentiment, more a rotation away from highly valued tech companies into value stocks that will benefit from a prolonged economic recovery from the pandemic.

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