Fed Easing Bets Trimmed After Jobs, Focus Turns to Manufacturing
Futures traders decreased the amount of easing they expect from the Federal Reserve after an unexpectedly strong U.S. jobs report.
(Bloomberg) --
Futures traders decreased the amount of easing they expect from the Federal Reserve after an unexpectedly strong U.S. jobs report, before turning their attention to manufacturing data and scheduled appearances by monetary officials later on Friday.
January fed funds futures imply a rate of 1.525% at the end of 2019, having indicated around 1.50% just before the release of the jobs data. Assuming an effective fed funds rate of around 1.57% in the wake of Wednesday’s Fed decision, the market is pricing in around 4.5 basis points of further easing for this year. A full quarter-point cut is priced in for some time in the second half of 2020.
Payrolls rose 128,000 after an upwardly revised 180,000 advance the prior month, according to a Labor Department report Friday that exceeded the median 85,000 estimate in Bloomberg’s survey. Revisions added 95,000 jobs for the prior two months. Treasuries fell, pushing the benchmark 10-year yield up by as much as 3 basis points to 1.72%, while the Bloomberg dollar index climbed and U.S. stock futures rallied.
“It’s certainly a strong surprise, it will reinforce the Fed’s message that they feel the economy’s in a good place,” said Kathy Jones, fixed-income strategist at Charles Schwab & Co. Inflation is still the missing catalyst for sustainably higher yields, in her view, and she expects the 10-year to remain in a range of 1.5% and 2.25%.
The next major focus for the market will be manufacturing data, with a Markit gauge out at 9:45 a.m. New York time and the Institute for Supply Management’s measure at 10 a.m.
Fed speakers scheduled for Friday include Richard Clarida, Randal Quarles, John Williams, Mary Daly and Robert Kaplan.
Earlier this week the central bank reduced interest rates by a quarter-percentage point for the third time this year. The Federal Open Market Committee altered language in its statement following the two-day meeting, dropping its pledge to “act as appropriate to sustain the expansion,” while adding a promise to monitor data as it “assesses the appropriate path of the target range for the federal funds rate.”
To contact the reporters on this story: Alexandra Harris in New York at aharris48@bloomberg.net;Emily Barrett in New York at ebarrett25@bloomberg.net
To contact the editor responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net
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