US April Employment report was extremely strong…USD spikes as a result

Today’s US April employment report was undoubtedly the strongest report of 2014, surprising the market with a headline print of +288K versus expectations of +218K. While the headline print was impressive, the upward revisions to the March and February readings by +11K and +25K respectively was also a positive sign – When applied to today’s April number, it brings the net amount of jobs added to 324K jobs and raised the 6-month moving average to just over 200K jobs (202.5 to be precise). More notably, this solidifies the view that ‘weather’ related distortions are now behind us, and we can look forward to a bright 2Q. 

Highlights of the report:

Another shocker was the unemployment rate which decline to 6.275% (6.3% rounded vs. expectations to decline to 6.6%) – However, this was mainly attributed to a massive decline in the civilian labor force by 806K, which dropped the Participation rate by 0.4% to 62.8%…matching the level witnessed in December and October, which was the lowest reading since 1978. That said, US aggregate weekly hours for all employees continued on its upward trajectory as it rose to 100.4, which matched the March 2008 high, and continues to suggest a further potential a pickup in economic activity in 2014 – For more on why US aggregate weekly hours are so important click here. More importantly, this report affirms the Fed’s pace of tapering by $10B per meeting and suggests QE will fully come to an end in the fall of 2014. 

Market response since the announcement: 

• USD rallied across the board – Roughly 40-60 pips 

• Treasuries sold off – 10 year yield is 3.5bps higher 

• US equities, gold and silver has nearly come back to pre-NFP levels

With the end of the week upon us don’t be surprised if pairs settle in near present levels, however with the bullish momentum built up in the dollar, namely in USDJPY, we would not be surprised if this carries over into the beginning of next week.