An Employment Report Worth Looking Forward To
Prior Week Summary
The fixed income markets went for a ride last week on a holiday-shortened schedule, as the risk of financial market contagion re-entered the vernacular. Rates began the week by falling 15-20 basis points across the curve in fairly active trading before ending the week relatively close to where they began. The curve continued its flattening trend, with the spread between 2-year and 10-year Treasury notes compressing an additional 3 basis points given the outperformance of the long-end end the curve.
The marquee economic news of the week was the unemployment rate falling to 3.8%, a near 50-year low. The market began moving well in advance of the report on the speculation that the administration may have inadvertently front-run the embargoed report on Twitter. It turns out that the report was worth “looking forward to”, as the labor markets added 223,000 jobs in May, relative to consensus expectations for an increase of 190,000. The report detailed that the gains in hiring were broad-based across industries, and continues to point to overall strength in labor markets, and may increasingly influence the overall trend of compensation costs. A deeper look into the wage picture, as measured by the separately released employment cost index, shows that a meaningful share of wage gains are happening at the lower end of the compensation spectrum, which has follow-through implications for the broader aggregate employment cost picture of all workers.
The Look Forward
The market will look forward to an active calendar of data releases this week, including updates the trade balance, consumer credit and wholesale inventories.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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