Non-Farm Payrolls Solidify Expectations for Jumbo-Sized Fed Hikes

Karl Schamotta, Chief Market Strategist, karl.schamotta@corpay.com

431,000 jobs were created in the United States last month and labour market conditions continued to tighten, adding fuel to expectations for at least two 50-basis point Federal Reserve hikes in the coming months. According to data released by the Bureau of Labor Statistics this morning, the unemployment rate ticked down to 3.6 percent from 3.8 percent in February, and the participation rate climbed to 62.4 from 62.3 percent in the prior month.

Average hourly earnings climbed 5.6 percent - outside of a compositionally-flawed print during the pandemic, the fastest pace recorded since the series began in 2007.

Revisions added 95,000 job gains to the prior two months.

The data was collected in mid-March, after the Russian invasion of Ukraine raised energy prices, tightened global financial conditions, and dampened economic sentiment levels.

Investors were positioned for a 490,000-job gain, but with the Fed’s employment mandate believed to have been met, inflation data is driving monetary policy expectations. Treasury yields remained stable, with the ten-year yield holding near 2.4 percent in the moments after the release.

The trade-weighted dollar weakened slightly, but is on the offensive as events in Ukraine hurt global risk sentiment and traders sell economically-sensitive currencies.

Earlier this morning, a data release showed consumer prices in the euro area rose by a record 7.5 per cent in March from a year ago, accelerating from 5.9 percent in February. A 44.7 percent increase in energy costs lifted the headline print, but core inflation jumped from 2.7 percent to 3, putting pressure on the European Central Bank to unwind its quantitative easing programme and begin raising rates.

European policymakers expect price growth to peak in the coming months and then subside, but with Vladimir Putin threatening to cut off gas supplies, that’s far from certain.

The euro has fallen from its highs, but remains slightly stronger on the week.