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The December non-farm payroll (NFP) report exceeded expectations, showing an increase to 216,000, compared with the projected 170,000. The report triggered an instant market reaction, pushing the 10-year yield above 4% and sending stock futures tumbling. 

Non-Farm Jobs Rose by 216K in December, Significantly Above Expectations

New jobs data for December were released on Friday and it’s not what many economists expected. US employers added 216,000 jobs last month, well above the consensus estimates of 170,000 and marking a significant increase from the revised November reading of 173,000. The unemployment rate stood at 3.7%, compared with the estimated 3.8%. The December print also marked the 36th consecutive monthly increase in job growth. 

On Thursday, a report by ADP stated that payrolls in the private sector rose by 164,00 in December, exceeding the 130,000 expected by economists. 

The stronger-than-anticipated NFP report caused an immediate impact in the markets. US Treasury yields continued their uptrend, with the 10-year note rising above the 4% level to 4.053%. The 2-year yield climbed slightly to 4.42%. 

Meanwhile, stock futures were down across the board, with the S&P 500 witnessing a decline to 4,722. Dow Jones and Nasdaq futures fell to 37,647 and 16,418, respectively.

Hot Labor Market May Delay the Planned Rate Cuts

Just a few weeks ago, the Federal Reserve said it intends to begin cutting interest rates in 2024, but the latest jobs report could make those plans more complicated. A hot labor market has been among the key inflation drivers for the past two years, which is why the central bank’s policymakers may delay the first cut. 

While the Fed has not provided an official timeline, some Wall Street analysts had expected a cut as soon as March. However, following the mixed minutes data released this week, a growing number of market watchers believe cuts could come later than expected. Today’s NFP data is likely to support this narrative. 

“For the Fed, the probability of a 25bp cut by March was down to 69% by [Thursday’s] close, which is its lowest since the December meeting, back when they published the dot plot that was more dovish than the consensus expected. And in turn, Treasuries sold off across the curve.”

– Deutsche Bank strategists led by Jim Reid said in a Friday note.

The next Federal Open Market Committee (FOMC) meeting will be held on January 30-31. Although this will be one of the key events to watch this month, economists and investors expect the Fed to leave rates unchanged from the current range of 5.25%-5.50%.

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