S&P 500 and Yields Jumpy After January Jobs Report and Michigan Sentiment

Also, 10-year T-note, gold, crude oil and euro futures

1. S&P 500 E-mini futures (/ES): +0.04% 
2. 10-year T-note futures (/ZN): -0.34% 
3. Gold futures (/GC): +0.19% 
4. Crude oil futures (/CL): +0.52% 
5. Euro futures (/6E): -0.17% 

The January U.S. nonfarm payrolls report showed a gain of 143,000 jobs, missing the 170,000 consensus forecast; however, the previous month’s reading was revised upward from 256,000 to 307,000. The household employment survey, which is used to derive the U3 unemployment rate, showed workers reporting more than 2.23 million jobs, the largest increase since the end of 2020. 

The internals of the report suggest jobs growth in 2024 tapered off to a still-strong plateau, with the U3 unemployment falling to 4% from 4.1%. Likewise, the tightness in the labor market may be helping to keep wages pointed higher: Average hourly earnings came in at at an increase of 0.5% month over month (m/m) and 4.1% year over year (y/y), well above the consensus forecasts of increases of 0.3% m/m and 3.8% y/y.  

The Sahm Rule indicator, which suggests that a recession has started once the unemployment rate rises by more than 0.5% relative to the minimum of the three-month averages from the previous 12-months, fell back to 0.37%, another sign the U.S. economy is moving away from the recessionary conditions of late summer 2024. 

U.S. equity markets were trading higher in the wake of the January U.S. jobs report, but at the time this report was written, the Michigan consumer sentiment survey had began to undercut bubbling optimism. Nevertheless, the S&P 500 (/ESH5) is flirting with a move back above 6100, while the spot VIX has oscillated around 15 for much of the morning.  

Treasuries are having a difficult time in the wake of the jobs report, which showed hotter wage gains than anticipated. Similarly, a sharp uptick in inflation expectations in the Michigan Consumer Sentiment survey are helping to drive a rebound in market-based measures of inflation. To this end, the long-end of the curve is selling off, with both notes (/ZNH5) and bonds (/ZBH5) more than a full point off their daily highs. 

Metals are quickly shrugging off any sluggishness over the past two sessions, with copper prices (/HGH5) jumping by more than 2%, while gold prices (/GCG5) scaled 2900 once more, returning to a stone’s throw from all-time highs. Silver prices (/SIH5) aren’t to be left out either, rising by nearly 1% to return to 33. 

Rising wages and solid jobs growth speaks to rising aggregate demand in the world’s largest economy, and energy markets are taking notice at the end of the week. Crude oil prices (/CLH5) are rebounding from their lowest close of the year; what had been a double-digit gain year-to-date as of Jan. 15 is now officially neutralized by the end of this week. 

Higher Treasury yields are helping support the U.S. dollar ($DXY) into the end of the week. Most major currencies had been putting up modest gains vs. the greenback before this morning’s data, but now both the euro (/6EH5) and the Japanese yen (/6JH5) have turned negative on the session. 

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. #@fxwestwater
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