NFP surprises to the upside but worrying signs persist


The June non-farm employment change printed today stronger than forecast, coming in at 372K (260K - forecast). Moreover, the U3 unemployment rate remains at 3.6%. The numbers resulted in a spike in the volatility of the 2-10s hourly yield curve, which showed a big ranged candlestick (blue arrow). The yield curve remains inverted - these number cement the Fed's 75bps hike for July, with 50 bps still priced in for September.

Despite this upside surprise, several data points are a concern:
1. The initial and continuing jobless claims suggest that all is not well with the jobs market.
2. Average weekly labour hours in the manufacturing sector are down to 40.9 from 41.6 in February.
3. The participation rate slipped from 62.3% to 62.2%.

The inverted yield curve perturbs. Whilst it does not guarantee a recession, it does suggest economic weakness ahead. In this regard, we will monitor the job market data over the subsequent few releases. It will measure whether the Fed can steer the economy toward a soft-landing or not.

US Bureau of Labor Statistics

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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