Market Wire - US Jobs Engine Accelerates, Defying Omicron

Karl Schamotta - Chief Market Strategist, kschamotta@cambridgefx.com

467,000 jobs were created in the United States last month even as the Omicron coronavirus variant sent millions of people home to recover, quarantine, or care for others. The unemployment rate climbed to 4.0 percent from 3.9 percent in December, reflecting an increase in the participation rate - up to 62.2 percent from 61.9 percent. Average hourly earnings rose 0.7 percent.

Gains for the prior two months were revised up by 709,000.

Investors were prepared for a slowdown, with the consensus expecting a modest 155,000-job gain, and several primary dealers forecasting a negative print. Earlier in the week, officials from the White House and the Federal Reserve warned of a “bad” number to come, arguing that it would not mark the beginning of a sustained slowdown.

Treasuries surged higher, with the ten-year yield popping through 1.86 percent in the moments after the release. The trade-weighted dollar moved nearly vertically, unwinding a portion of yesterday’s losses.

In Canada, where lockdowns were far more draconian, -200,000 jobs were lost in January, amid expectations for a -110,000-position drop. The unemployment rate jumped to 6.5 percent from December’s 5.9 percent.

The loonie slipped further, falling more than 50 basis points as investors focused on interest rate differentials and ignored seven-year highs in oil prices.

More broadly, increasingly-hawkish central bank narratives are driving gains in the world’s core funding currencies - the dollar, euro, and yen, while commodity-linked and economically-sensitive units are tumbling. European Central Bank President Lagarde’s comments during yesterday’s press conference continue to lend the common currency support - although that may weaken through the day as traders place heavier bets on a 50-basis point hike at the Fed’s March meeting.