The U.S. jobs report disappointed with a lean 138k May payroll rise after 66k in downward revisions, though with only modest undershoots in most of the other series and a welcome 0.1% May hours-worked rise after an unrevised 0.5% April pop. The workweek stayed at 34.4, and hourly earnings rose by 0.2% after a slight April trimming to 0.2% from 0.3%. We saw moderate goods sector gains for jobs but with flat hours-worked, alongside declines of 233k for civilian jobs and 429K for the labor force that left a cycle-low 4.29% jobless rate and a participation rate drop to 62.7%. For the bellwether goods sector, jobs rose 16k, with gains of 11k for construction and 6k for mining, but with a 1k downtick for factories, alongside hours-worked gains of 0.6% for construction and 1.2% for mining, but with a 0.5% drop for factories.
Fed funds futures are rallying, led by the 2018 contracts as the disappointing May jobs report lowers the odds for the third rate hike this year which has been projected by the dot plot and touted by many Fed officials. Implied rates are still pointing to a 25 bp rate hike at the upcoming June 13, 14 FOMC meeting, with about 85% probability, and is fully priced in by July (there is a Fed meeting on July 25, 26). But the market is now suggesting only about 35% to 40% chance for a September tightening. While a solid bounce in jobs will be necessary for a hike in September, of more importance will be the disposition of inflation as the recent deceleration has worried several FOMC members, including voters Powell, Brainard, Evans, and Kashkari, while non-voter Bullard has become concerned over the aggressiveness of the Fed’s path. There’s also been considerable debate whether rate action September or December could be delayed by the announcement of balance sheet shrinkage.
Gold Futures rallied to five-week highs of $1,276.20 from near $1,262.00 after the U.S. jobs report, largely as the dollar took a nose-dive, and as pre-weekend short covering steps in. In the FX markets EURUSD rose to 1.1270, USDJPY reversed down through 111.00 to trade at 110.45 and even Cable rallied to 1.2900 before falling back to 1.2870.
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