‘Good News Is Bad News’: Big Jobs Beats Sends Rate-HIKE Odds Soaring; Batters Bonds, Stocks, Gold

A four standard deviation beat for non-farm payrolls this morning (good news) is triggering ugly reactions (bad news) across markets with rate-hike odds for September ripping back up near recent highs (despite no signs of inflationary wage growth – in fact it is slowing)…

Audrey Childe-Freeman, Bloomberg Intelligence’s chief FX strategist:

“The strength in the latest NFP report will validate Sept. Fed rate-rise talks and most likely give the dollar a short-term-yield-driven lift.”

“But that’s priced, and unless the Fed signals the beginning of an aggressive tightening cycle, the Fed-driven dollar upside may be contained into 4Q.”

That in turn is hammering the short-end of the yield curve…

And weighing on stocks…

The dollar jumped…

Which in turn dragged gold down…

This could be an over-reaction since we note what Fed Chairman Warsh said last week: “I believe the labor markets are consistent with full employment,” he said, which is why policymakers have largely priced in healthy employment.

The bigger focus remains inflation.

Today’s numbers are still second fiddle to what we get next week – both producer and consumer prices, which will be used to compute the PCE numbers. While today’s strong jobs reading surely supports the case for a hike, wage gains don’t suggest any inflation pressures so it’s not like the labor market is a smoking gun for a hike.

‘Give disinflation a chance’, was the message from Waller yesterday (who basically corroborated Williams). The center of the committee has not shifted – it is still data-dependent.

He might hold in September unless inflation comes in hot, and he made clear that NFP matters less than CPI next week.

Event risk has effectively migrated from payrolls to CPI.

The news media will run with the “JOB JOBS JOBS” story, but the real news is next week’s inflation print, and a melt-up setup that still has to survive Hormuz (heating oil, diesel record highs).

To summarize, the jobs market appears strong but next week’s data will determine what the Fed does.