E The Daily Shot And Data – August 8, 2016

Greetings,

We begin with the United States where Friday’s payrolls report significantly exceeded forecasts. The labor markets improvement was broad, showing an increase in participation as well as in wage growth. 

1. Do we expect this trend to continue? Here is a comment from Merrill Lynch.

Source: BofAML

 

2. The labor force participation seems to have bottomed last December – for now. Over time, demographic forces will continue to push participation lower, but the current stabilization is welcomed.

3. US wage growth is gradually picking up momentum. Companies will need to boost productivity to maintain margins.

4. On the other hand, US underemployment (U-6) has stalled.

5. The chart below indicates that there are millions of people who are not in the labor force but want a job. Some of this is due to the persistent skills gap. We no longer have the construction boom that absorbed a great deal of low-skilled labor during the “bubble” era.

6. Average US duration of unemployment remains elevated relative to historical levels.

7. US oil & gas as well as coal mining payrolls continue to decline (on a year-over-year basis). 

 

Here is how select markets reacted to the payrolls report.

1. Treasuries sold off after having rallied in response to the Bank of England action on Thursday. Below is the 10y treasury yield.

 

 

2. The Fed rate hike probability this year rose – approaching even odds again.

3. The US dollar rose as well.

Source: barchart.com

4. It was a bit surprising to see the US equity markets jump to new records given the increase in the rate hike probability and a higher dollar. It’s important to keep in mind that the current equity valuations only make sense (perhaps) at the historically low rates we have today. 

Source: barchart.com

1. Turning to Canada, the nation lost the most full-time jobs in nearly 5 years while the labor force participation continues to drop (though remains about the US levels). A temporary blip?

 

2. Canadian trade deficit was worse than expected.

1. Now on to the UK, where according to HBOS, the nation’s house prices are still up over 8% from last year. This trend is reflective of an ongoing housing shortage.