• The US lost 140,000 jobs in December, far worse than expected. 
• Concerns about deeper scarring of the economy may prompt action by the Fed.
• A reversal of yield gains may send the dollar down. 

Winter has come – and it is taking its economic toll. The US has shed 140,000 jobs in December, the first fall since the spring, and worse than expected. The virus has been raging in the last month of 2020 and government support was still in the works. Revisions added 135,000 to the previous two months, but the most recent figure is more worrying.

The Unemployment Rate remained at 6.7% against expectations of an increase to 6.8%, yet it comes on top of a low participation rate.

The employment to population ratio is at 57.4%, unchanged but around three points below 2019 levels, a broad view of labor market damage that shows how the jobless rate is skewed.

The US was expected to report an increase of around 71,000 positions in December, a modest pace in comparison to both the pre-pandemic era and especially to the substantial recovery since the spring. ADP’s private-sector labor figures pointed to a loss of 123,000 jobs. Finally, ADP’s data was correct.

Fed to the rescue?

The US dollar has been rising in tandem with bond yields. Investors sold off Treasuries in anticipation of additional issuance due to the massive stimulus that Democrats are set to pass. President-elect Joe Biden will likely take advantage of his new majority in the Senate to pass through multi-trillion relief packages.

However, the Federal Reserve is ready to buy more bonds – it already opened the door back in December and the meeting minutes reiterated this stance. Will it happen now? Another boost from the Fed would push yields lower and crush the dollar’s recovery.

Jerome Powell, Chairman of the Federal Reserve, speaks next week and may trigger market volatility.