Non Farm Payrolls for October presented a decidedly mixed picture with headline unemployment rate jumping into double digits but the job losses from payrolls dropping bellow the -200K barrier, The unemployment rate reached 10.2% - the highest level in more than 26 years, breaking the psychologically important 10% barrier. However payrolls dipped below -200K to -190K for only the second time in more than a year indicating that layoffs are beginning to plateau. Additionally average hourly earnings increased to 2.4% y/y from 2.2% eyed suggesting that wage deflation has eased.
Despite the fact that the 10.2% unemployment rate may weigh heavy on consumer sentiment ahead of the key Christmas shopping season, capital markets displayed a relatively muted reaction to the data and were more encouraged by the deceleration in job losses rather than the increase in unemployment. Equity futures were off only modestly while risk trades in FX also saw only a moderate retreat. EUR/USD which had traded as high as 1.4900 ahead of the number retraced to 1.4850 in the aftermath the release.
The key question going forward is whether the capital markets will perceive today’s results as a wash out number and will look to the positive rate of change in the payroll data as precursor of better labor conditions to come. If so, equities and risk FX may stabilize as the day progresses and could stage a mild rally to the close. However, today’s NFP report fell far short of an unambiguously bullish result and therefore the risk trade appears to be capped for the time being at 1.5000 EUR/USD until markets see further evidence of recovery in economic activity