Market Insights – November 5, 2018

November 5, 2018 Chatham Financial

What Unemployment?

View this week's rates.

Prior Week Summary

The jobs report surprised to the upside last week, as the labor market added 250,000 positions in October, relative to a consensus expectation for a gain of 200,000. The headline unemployment rate was unchanged at 3.7%, while the underemployment (U-6) rate improved by 0.1% to 7.4% during the period, tying the lowest level on this metric in almost 20 years. The above trend growth incented more workers to seek employment, causing the labor force participation rate to increase to 62.9% in October. Additionally, average hourly earnings grew by 0.2% on a month-over-month basis, bringing the yearly increase in worker compensation to 3.1%, the strongest increase in the post-crisis environment. The wage growth figures were broad-based with earnings in goods-producing sectors gaining 2.5%, while the service economy saw a 3.3% improvement in compensation.

While the headline improvements in wages suggest there may be less slack in the labor market than some have argued, it is important to point out that the year-over-year comparisons were positively influenced by last year’s hurricane Irma and Harvey related weakness. The strength in labor markets is likely to keep the Fed on track to hike in December, and potentially push the fed funds target rate into restrictive territory.

The Look Forward

The data calendar is active this week, with updated data expected on the ISM non-manufacturing survey, producer inflation as well as consumer sentiment. There is also an FOMC rate decision on Wednesday that is broadly expected to produce no headlines.

 

Rates Snapshot

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

Source: Bloomberg Finance L.P.

 

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit http://www.chathamfinancial.com/legal-notices/.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions.

18-0257

Previous Article
Market Insights - November 13, 2018
Market Insights - November 13, 2018

As was widely anticipated, the FOMC kept the policy rate unchanged at a range of 2.0% to 2.25%. There were ...

Next Article
Market Insights – October 29, 2018
Market Insights – October 29, 2018

Equity market volatility continued to drive activity in the fixed income markets last week, bringing the 10...

×

Subscribe to Chatham's weekly Market Insights

First Name
Last Name
Company
!
Thank you!
Error - something went wrong!