President Donald Trump yesterday stepped up the pressure on the independent Federal Reserve’s FOMC through his usual route, Twitter. ‘Despite the unnecessary and destructive actions taken by the Fed, the economy is looking very strong…..’
He has also told confidants that he will nominate Herman Cain to the Board of Governors following his last nomination of Stephen Moore. Moore had openly called for an immediate 50bp rate cut, but had caught some negative headlines in the New York Times which could make it difficult for him to get through the confirmation process, although it is reported that Moore has ‘no plans to step aside’. So the market speculates that Cain is the administration’s latest attempt to get an ultra-dove on to the FOMC, which does have two governor seats vacant, with the Presidents aim of getting in a member who would vote for an immediate rate cut.
Our view is that even if both potential nominees make it onto the committee, which looks doubtful, they may argue for rate cuts and even dissent, but they will not be able to move the remainder of the board from their current positioning of a pause in rate hikes awaiting further economic evidence.
So onto the Non-Farm Payrolls release for March which came in at 196k, just a little higher than market expectations of 177k. However, with the two month net revision of +14k it makes the headline a little stronger than the calls. The big surprise was in the Average Hourly Earnings of 0.1% month on month and +3.2% year on year when the market was looking 2 tenths higher in both. The unemployment rate was stable at 3.8% and the participation rate was also 2 tenths lower at 63.0% from 63.2% expected.
Broadly, the report was a little stronger on headline employment than the market was looking for but still equates to a headline employment of just 180k from the previous 191k for the three month average. On the inflation front the news remains positive but there is not enough in this report to push pricing too far in either direction. The ten year Treasury note is trading a little stronger than levels seen through the London morning session, that is at the time of writing.