NFP review: numbers disappoint but stimulus drives sentiment

• Stock futures hold gains, yield curve steepens
• Second straight disappointing payrolls number
• Move to fast-track Biden stimulus package drives sentiment

Stocks are set for fresh record high opens on Wall Street and a 5^th straight day of gains – something we haven’t seen since August. A soft jobs report has done little to upset the underlying risk-on sentiment that stems from the milking stool of equity market strength: vaccines, stimulus and earnings growth.

Although in line with expectations, really it was another disappointing number from the US jobs market. Nonfarm payrolls rose +49,000 in January, following the -227,000 decline in December, which was revised down from the initial -140,000 print last month. So things look worse in the labour market than maybe we thought but futures are looking right through this with Joe Biden’s $1.9tn stimulus package coming over the hill. The dollar is offered and the yield on US 10-year Treasury notes has leapt with spreads widening along the curve.  2s10s spread at 1.06%, highest for four years, with 5s30s at 150bps,  the widest since 2015.

The decision to move on stimulus without Republican support really changes the game. As I said yesterday, Biden wants to act fast and does not want to spend his first 100 days in office horse trading with the GOP over relief plans. The price of this could be any hopes of bipartisanship in future and we may need to wait until 2022 for the big green/infrastructure package as a result, and it may prove harder to deliver. For now thought dumping an extra 10% of GDP in stimulus is being lapped up by the market.

Unemployment fell to 6.3% from 6.7% but the decline in the participation rate is a concern. U6 unemployment fell to 11.1% from 11.7%. Average hourly earnings rose +5.4% year-on-year vs 5% expected. The two month net revision took the total down by -159k. The US still has some 9.8m fewer jobs than it had in February 2020 before the pandemic struck. Permanent job losses are a concern – the number of permanent job losers, at 3.5 million, changed little in January but is 2.2 million higher than in February.

S&P 500 not bothered: Biden is going for it on stimulus.

Cable higher and hugging the trendline.