It’s make or break for the US employment market - Market Overview

It’s make or break for the US employment market - Market Overview

Yesterday two relevant economic figures related to the labor market were published in the United States.

On the one hand, the ADP Nonfarm employment for January, creating new jobs in the private sector, with a figure well above the expectations, 174k vs 49k expected and -78k for December, which has raised clear expectations of improvement in job creation.

On the other hand, the non-manufacturing ISM for January with a figure of 58.7 vs 57.4 expected. Still, the most important thing is the employment component that has shot up compared to the previous month.

All this makes investors anticipate a better Non-Farm Payroll figure, data that will be published tomorrow Friday. For now, the average forecasts of analysts stand at only 50k new jobs created.

The importance of employment data is high given that the Federal Reserve's objective in terms of the implementation of its monetary policy focuses almost exclusively on achieving a level of employment similar to, at least, that which was had before the beginning of the crisis.

The Fed, through its president, has stated that the other objective, inflation, now takes on a secondary role and that excess inflation above 2% would be allowed if necessary, to reach the established employment figures.

USD denominated assets

These better expectations caused a rebound in the yields of the US Treasury bonds (price falls) in all the references of the curve, which in the case of the 10-year Tnote rose to the area of ​​1,155%.

In this case, the outflow of fixed income is produced by the increase in risk appetite in the face of prospects of improvement in the North American economy on the one hand and on the other hand by the possibility that inflation expectations will increase with a labor market upward and a very expansionary monetary policy.

These increases in yields throughout the North American bond curve directly affect the price of the Dollar against all its counterparts, which is reflected in USD/JPY.

This pair with a high degree of correlation with US Treasury bonds yields significant technical levels such as the first resistance around 104.75. It has also exceeded the 100-day line SMA, now located at 104.42. From technical analysis, the outlook has started a change in the downtrend started in February last year for which it would need confirmation with a daily close above 105.65.

Above this last level are 106.20 and 107.00 respectively.

Sources: FT, Bloomberg.

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