US Job Growth Blows Past Expectations in January

January employment data didn’t surprise, as always, it was a surprise. The unemployment rate increased to 3.6% from 3.5% in December, and it was expected to remain at 3.5%. Non-farm jobs were much better than the 160K expected, increasing 225K, private jobs increased 206K on estimates of 150K. Manufacturing jobs continue to decline, expected -6K, but dropped 12K jobs. The average hourly earnings were thought to be +0.3%, as released +0.2%, but yr/yr expected +3.0% was +3.1%. The labor participation rate at 63.4% was better than 63.2% anticipated and at a seven-year high. 9:00 am ET the 10 yr at 1.60% -4 bps and MBS prices +14 bps from yesterday. The DJIA in futures trading at 9:00 am -141.

This morning the equity markets after huge gains this week are pulling back a little with increased concerns about the coronavirus in China. After seemingly brushing it aside and betting on a return to somewhat normal in Q2, today, the concerns are ebbing back a little. There are fresh reports of further infections, more deaths, and more quarantines. The fallout for companies is starting to come into focus, with corporations such as Toyota Motor Corp. and Honda Motor Co. temporarily halting operations in China. Luxury retailer Burberry slipped after scrapping guidance over the virus, hitting sales in China. Apple’s iPhone maker Foxconn told employees not to return to work at its Shenzhen facility when the extended Lunar New Year break ends Feb. 10. More infections on a cruise ship off Japan offered another reminder that cases remain on the rise.

Confirmed cases worldwide now total 31,432, having risen more than 3,000 in one day, while the death toll reached 638. The death of a 34-year-old doctor on Friday has unleashed a wave of fury that is sparking a rare crisis of confidence in the Communist Party. Local authorities sanctioned him after blowing the whistle on the disease last month; he succumbed to the virus early on Friday.

At 9:30 am ET, the DJIA opened -150, NASDAQ -48, D&P -13. 10 yr 1.60% -4 bps. MBS prices at 9:30 +17 bps from yesterday’s close and +20 bps from 9:30 yesterday.

This evening another democratic debate in New Hampshire while the finals from Iowa are not resolved with both Buttigieg and Sanders claiming victory.

May be an interesting day, stock indexes weaker on the open, but the overwhelming bullishness could be hard to tame. The coronavirus so far has had only sporadic influence, with most investors willing to blow it off as a momentary bump in the road and continue to bet on continued growth. The bull market is the longest in history; it began in 2009 and has roared high since. The improvement in interest rates today is about the virus and a slight decline in average hourly earnings. The better job growth looks more like a weather-related drive, January’s weather much warmer than normal. We expect employment gains to slow in February as the coronavirus, which has killed hundreds in China and infected thousands globally, disrupts supply chains, especially for technology companies.

The recent increase in rates and lower prices on MBSs didn’t change our bullish models. To alter our models would require the 10 yr to exceed 1.70% (1.59% now), yesterday’s high was 1.68%. Fundamentally it is about how the equity markets perform; any dips recently have been buying opportunities.

Source: TBWS