At the beginning of the Asian market on Monday (February 6), the U.S. dollar index rose slightly, hitting a new high of more than three weeks to 103.24 at one point, continuing last Friday’s rally and currently trading around 103.08. The dollar surged 1.23% on Friday after data showed U.S. employers added significantly more jobs in January than economists expected, potentially giving the Federal Reserve more leeway to keep raising interest rates.
The dollar rose to 132.48 against the yen on Monday, a new high since January 12. On the one hand, the dollar strengthened, and on the other hand, people familiar with the matter said that the Japanese government has contacted the deputy governor of the Bank of Japan May succeed Haruhiko Kuroda, governor of the Bank of Japan. The official has long supported monetary easing, and the market is concerned that once Masayo Amamiya takes over as governor of the Bank of Japan, the Bank of Japan will maintain monetary easing for a longer period of time.
The Labor Department’s closely watched jobs report showed nonfarm payrolls surged by 517,000 last month. The department revised December data to show an increase of 260,000 jobs instead of the 223,000 previously reported.
Average hourly earnings rose 0.3 percent after rising 0.4 percent in December. That slowed the year-over-year increase in wages to 4.4 percent from 4.8 percent in December. Economists polled by Reuters had forecast a rise of 185,000 jobs and wages rising 4.3% from a year earlier.
That’s a “monster number,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
It was up 1.23% late Friday at 103.00, its best day since Sept. 23.
Non-US currencies generally fell sharply last Friday,It fell 1.07% to US$1.0792 last Friday, the largest one-day drop since January 3. On Monday, the Asian market dropped slightly at the beginning of the session, reaching a minimum of 1.0777, a new low in nearly two weeks.
It jumped 1.96% to 131.18 on Friday, its biggest one-day gain since June 17.
According to the Nikkei news report, people familiar with the matter said that the Japanese government has contacted the deputy governor of the Bank of Japan, Amamiya Masaka, and believes that he may succeed Haruhiko Kuroda, the governor of the Bank of Japan. The government will submit the BOJ governor and two deputy governors to Diet this month after final discussions with the ruling coalition. Amamiya, dubbed the BOJ’s “prince,” has devoted much of his career to policy planning. Amamiya has been involved in planning nearly every key move the BOJ has taken to combat deflation, from quantitative easing in 2001 to yield curve control, which is still in place today. He has backed Kuroda since 2013, first as the BOJ’s executive director and later as its vice-governor.
Affected by the news, the dollar jumped nearly 1% against the yen to around 132.48 in early trading on Monday.
However, Masakashi Amamiya, deputy governor of the Bank of Japan, did not respond to the news that he was nominated as a candidate for president, according to Jiji news agency. Affected by this news, USD/JPY dropped nearly 100 points to around 131.50, and is currently trading around 132.00.
Last Friday, it fell sharply by 1.42% to $1.2050, the worst single-day performance since December 15. On Monday, the Asian market hit a low of 1.2029 at the beginning of the session, a new low since January 6.
The unexpectedly strong jobs number reversed a move last Wednesday, when traders raised bets that the Federal Reserve would stop raising interest rates after raising borrowing costs by 25 basis points in March.
“After the Fed meeting, the market looked in the upper hand, still pricing in a rate cut, they got yields down, the dollar was lower, and now 48 hours later I think the Fed looks like it might have the upper hand,” Chandler said.
The Fed raised interest rates by 25 basis points last Wednesday and said it had reached a critical inflection point in its fight against high inflation, leading investors to price in a more dovish path ahead.
Fed officials said in December they expected to raise the federal benchmark overnight interest rate above 5 percent, emphasizing that they would need to remain in restrictive territory for some time in order to sustainably lower inflation.
But traders have been betting that rates will peak below 5 percent and that the Fed will cut rates in the second half of the year as the economy slows.
Traders are now pricing in a peak for the Fed’s policy rate of 5.03% in June, up from 4.88% on Thursday afternoon.
However, fears of a deeper recession could also weigh on markets as rate hike expectations grow.
“Whenever we see these big numbers, especially major numbers, the fear of the Fed comes back with a vengeance because people might be worried that the Fed will push things back,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Wisconsin. Farther than it is now, the risk of the operation is not a soft landing, but more like the scene of a car crash.”
The next major U.S. economic data that could provide further clues to Fed policy will be January’s consumer price index (CPI) data on Feb. 14.
Important economic data and risk events on Monday
ING Bank: Masayoshi Amamiya’s nomination as BOJ governor will be positive for bond markets
Antoine Bouvet, senior rates strategist at ING Bank in London, said the nomination of BOJ Deputy Governor Masayoshi Amamiya as a candidate for governor should provide a bit of bullish momentum after a week of slump in Japanese bond markets. As a reminder, market expectations are already moving towards a gradual normalization process following December’s frenzied bets that the BoJ will pivot. Japanese investors have been net sellers of foreign bonds for most of the past year, so in any case it would be wrong to expect a wave of bond selling after the BOJ normalizes.
JPMorgan Chase: China‘s economic growth momentum will improve in 2023
Recently, Liang Zhiwen, CEO of JPMorgan Chase China, accepted an exclusive interview with CCTV reporters in New York. Liang Zhiwen said that the consumption growth during the Chinese New Year period shows that the Chinese economy is performing strongly, and investing in China is the right choice. Liang Zhiwen said that not only consumption, but also some other sectors are also affected. For example, orders for infrastructure, the direction of manufacturing development, and data also showed a significant increase. So at this stage, we also feel that the momentum is developing very well, and the economic trend is linked, driving other industries to go up together.
Pantheon Macroeconomics: February non-agricultural employment data is expected to soften, but it will not affect the Fed’s interest rate hike
Pantheon Macroeconomics pointed out that before the March FOMC meeting, there is another non-farm report to be released, and it is expected that job growth in February may be weaker than in January, but the labor market still looks tight and continues to prompt the Fed to raise interest rates again . Pantheon Macroeconomics argues that policymakers should give more weight to improving wage data (suggesting they are overly worried about low unemployment) and the apparent decline in core inflation. The Fed’s case for keeping rates on hold is expected to be much stronger by May.
AmeriVet Securities: Jobs report expected to dampen calls for rate cut in 2023
Gregory Faranello, head of U.S. rates trading and strategy at AmeriVet Securities, said the January jobs report suggested that the Fed would raise rates one or two more times before possibly pausing. That would at least cast doubt on a rate cut this year. The initial jobless claims data and the JOLTS report did not point to any weakness in the labor market. Layoffs and hiring are ongoing. For now, wages are holding steady and the labor force participation rate is rising along with job creation, which is a good outcome for the economy.
Allspring Global Investment’s senior investment strategist commented on January’s non-agricultural: Powell may turn back into a hawk again
① Whenever we see these huge numbers, especially in the headlines, the fear of the Fed will come back, because people may fear that the Fed will push things further, risking not a soft landing, but a larger The risk of a “car accident”.
② Chairman Powell is turning from a hawk to a dove, and now such data may indicate that he will turn back to a hawk again.
③ The near-term concern is that the Fed may be doing too much, trying to push the target rate well above 5%, rather than trying to keep the landing point closer to where we are now, which is around 5%.
④ In the long run, this is related to whether we will have a very slow recovery.If the Fed tries to raise rates for too long, the eventual economic recovery could be weaker
Chief trading strategist at TD Securities in Chicago commented on January non-farm payrolls: a blockbuster report that will definitely put the Fed in trouble
① One of the things is that the part of the wages that people focus on, is actually more or less in line with everyone’s expectations. But we’ve got so many people coming back, adding jobs, we’re seeing a slight increase in labor force participation, and if you look at gross income, just the money paid to workers has gone up significantly, so that’s going to be inflation.
② A report showing more than 500,000 people were hired, with data for the past two months being revised upwards, proves how incredibly strong the job market is. So it’s a blockbuster report and it’s sure to put the Fed in a bind.
③ One of the things people might be looking at is that between now and when the Fed does something again in March, you’re going to see another jobs report, so maybe some people are looking for some comfort that the Fed is still doing things, They can still engineer a soft landing, and they could see a major correction in February, possibly with a more dovish report.