US jobs and wages

The non farm payroll data released on Friday (after market our time) is slightly problematic from the “inflation-is-being-well-behaved-and-set-to-decline” perspective.

The top right graph shows average hourly earnings, and, rather than softening, it’s still pretty strong. If wages are growing above 6%, on an annualised basis, it will be difficult to get core inflation below 4%, for example.

Although the number of net new jobs added over the month continues to trend lower (263k) it still came in quite a bit hotter than expected.

Now the market chose to look through the number as a) noisy against a backdrop of other more benign data and b) there’s still lots of policy tightening yet-to-make-its-impact-but-still-in-train and c) adjusting for the number of hours worked (which fell) the overall print continues to be closer to the 0.4% range, rather than 0.55%.

Longer dated bond yields have, in general, moved modestly, with the US 10 year sitting close to 3.5%.

Depending on how far that 10 year continues to move, we might look to lighten duration a touch (it still looks attractive, and our comments are entirely dependant on whether the market gets ahead of itself), at the margin, which usually means deploying into cash, floating rate exposures, or non-correlated alts.

No call to action, here, yet.

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