Feb employment report keeps the Fed on track

Economic Data

- (BR) Brazil Feb FGV Inflation IGP-DI M/M: 0.5% v 0.4%e; Y/Y: 3.7% v 3.6%e 
- (CL) Chile Feb CPI M/M: 0.4% v 0.2%e; Y/Y: 4.4% v 4.3%e; CPI Core M/M: 4.4% v 0.3%e 
- (IN) India Weekly Forex Reserves w/e Feb 27th: $338.1B v $334.2B prior
- (RU) Russia Feb Official Reserve Assets: $360.2B v $360.0Be 
- (BR) Brazil Feb IBGE Inflation IPCA M/M: 1.2% v 1.1%e; Y/Y: 7.7% v 7.6%e 
- (PL) Poland Feb Official Reserves: $97.5B v $99.4B prior
- (US) Feb Change in Nonfarm Payrolls: +295K v +235Ke; Change in Private Payrolls: +288K v +225Ke; Change in Manufacturing Payrolls: +8K v +10Ke 
- (US) Feb Unemployment Rate: 5.5% v 5.6%e; Underemployment Rate: 11.0% v 11.3% prior; Change in Household Employment: +96K v +250Ke; Labor Force Participation Rate: 62.8% v 62.9%e 
- (US) Feb Average Hourly Earnings M/M: 0.1% v 0.2%e; Y/Y: 2.0% v 2.2%e; Average Weekly Hours: 34.6 v 34.6e 
- (US) Jan Trade Balance: -$41.8B v -$41.2Be 
- (CA) Canada Jan Int'l Merchandise Trade: -$2.5B v -C$1.0Be 
- (CA) Canada Jan Building Permits M/M: -12.9% v -4.0%e 
- (CA) Canada Q4 Labor Productivity Q/Q: -0.1% v 0.0%e 
- (MX) Mexico Feb Consumer Confidence Index: 90.3 v 91.1e 


- Global markets were relatively subdued heading though the US premarket session, but the Feb employment report stirred things up. Following the data the US Greenback extended to fresh multi year highs while US rates backed up to levels last seen when the calendar changed to 2015. US stock futures lost ground especially relative to their European counterparts after the headline nonfarm payrolls figure handily surpassed expectations. Short rates also moved higher, and selling in the fed fund futures market suggests traders' expectations are moving closer to what we have been hearing from a chorus of Fed officials recently. Gold and oil prices have dipped likely pressured by the Dollar's latest leg higher and in anticipation of higher rates. Similarly dividend dependent sectors such as REITS, utilities and home builders have all under performed while asset managers and insurance companies have rallied. The Dow is down more than 160 points while the S&P has given back 16 and the NASDAQ Composite has slipped 25 handles, all near the lows of the day. 


- As par for the course, a closer look at the Labor Department data reveals a bit more of a mixed picture than the headline numbers might suggest, but overall the tone remains definitively positive. As expected the unemployment rate fell at tenth to 5.5% while the underemployment rate declined 3 tenths to 11% likely helped in part by a 0.1% decline in the participation rate. The hotly debated wage component (average hourly earnings) as expected gave back much of the surprise Jan gains and notably missed consensus expectations bringing the y/y figure back down to 2%. Following the report the Fed may still need to see tangible signs that inflation is firming to justify a rate hike, but the employment part of the argument for tightening is stronger than ever. US Treasury yields moved up across the curve and the 2-10 year spread widened 150 basis points. The US benchmark 10-year Treasury yield is now up on the year at 2.23%. The Fed fund futures market is now projecting liftoff sometime this summer is a real possibility. 


- Apple announced its inclusion into the Dow Jones Industrial Average after more than a year of such speculation. It will be replacing AT&T on March 19th. The index change was prompted by Visa Inc.'s 4:1 stock split which is scheduled to be effective at the same time. The Telecommunication Services sector will continue to be represented in the DJIA by only Verizon. Apple shares have spent much of the session up about 2% ahead of Monday's Watch event while AT&T has lost ~1.5%.


- Last night the US Fed released the latest results of its supervisory bank stress tests and all banks came in above the capital thresholds required. On a risk weighted basis Goldman Sachs, Morgan Stanley and JP Morgan garnered some additional handwringing after their capital ratios didn't clear the Fed minimum requirement by much. It remains to be seen how the data will affect these institutions ability to return capital to shareholders when the CCAR results are revealed next week. The XLF after opening flat has rallied modestly.


- Another stellar US employment report continued to fuel the USD rally, EUR/USD at fresh 11-year lows below the 1.09 level while the USD/JPY reached 1.21. Emerging market currencies remain vulnerable to the looming Fed rate hike, The USD/BRL testing above 3.03 level (weakest Real level since 2004), South Africa Rand hit 13 year lows as USD/ZAR approached the 12 neighborhood.

Looking Ahead

- (BE) Belgium Sovereign Debt May Be Published by Moody's 
- (HU Hungary Sovereign Debt May Be Published by Moody's 
- (NL) Netherlands Sovereign Debt May Be Published by Moody's 
- 13:00 (US) Weekly Baker Hughes Rig Count 
- 13:00 (CO) Colombia Monetary Policy Minutes 
- 13:30 (US) Fed's Fisher (hawk, non-voter) at Dallas event 
- 15:00 (US) Jan Consumer Credit: $14.8Be v $14.8B prior
- (UR) Ukraine Feb CPI M/M: 4.6%e v 3.1% prior; Y/Y: 32.7%e v 28.5% prior
- (UR) Ukraine Feb PPI M/M: No est v 2.3% prior; Y/Y: No est v 34.1% prior