Ugly jobs report sends dollar lower and stocks higher?!

Economists and investors could not have been more wrong about today’s U.S. jobs report. The U.S. dollar traded sharply lower against all of the major currencies on the back of what can only be described as an abysmal non-farm payrolls report. Economists were looking for just under a million jobs and the whisper number was well above that level. To everyone’s complete surprise, only 266K jobs were created in the month of April.  Job growth in March was revised lower as well with the unemployment rate rising to 6.1% (it was expected to fall to 5.8%). The only good news was wage growth which accelerated 0.7% against a forecast of zero growth.  
 
Everyone is scratching their heads about how the jobs report could be this terrible given strong consumer confidence and sharp declines in jobless claims. Some economists are pointing to shortage of workers – especially since construction employment was flat despite the booming housing market and pickup in residential construction. Leisure and hospitality added more than 330K jobs but that increase was offset by declines in manufacturing employment and temporary help. 
 
How could there be a lack of workers if the economy is still short 8 million jobs from its pre-pandemic level? Childcare issues and generous expanded unemployment benefits scheduled to expire in September are a big part of the problem.  Many workers are reluctant to return to work, particularly in person before the school year ends. It is unclear if there will be a strong snap back in next month’s report (we think there will) but what is irrefutable is that taper has been thrown out the window. Federal Reserve Chairman Jerome Powell’s reluctance to talk taper is justified by today’s numbers. Investors sold U.S dollars across the board which is the reaction you’d expect to such a soft release.
 
Stocks on the other hand soared as investors shrugged off the data. As Treasury Secretary Janet Yellen said after the report, we “should not take one month data as underlying trend.” President Biden along with Yellen were quick to defend jobless benefits by saying they don’t think extended benefits are hurting employment. Ultimately stocks are trading higher because investors know that the recovery in the U.S. economy is strong and jobs will return. This month’s numbers are a fluke - May and June data should be much better. The recovery in Treasury yields which fell sharply after the jobs report confirms that bond traders share this view. With that said, the weak jobs report and the rise in stocks should keep the U.S. dollar under pressure.
 
Canadian labor market numbers were terrible as well with more than -200K jobs lost in April. Their unemployment rate also ticked up to 8.1% from 7.5%. Like the U.S. dollar, the Canadian dollar’s losses were limited by the underlying strength of Canada’s labor market and the prospect of a stronger recovery.