Nonfarm Payrolls August 2018

Surpassing our expectations this morning were jobs and wage price inflation for the month of August. In light of ADP’s data release earlier in the week, August jobs were expected to taper off a bit. Nonetheless, US payrolls rose by 201,000. Wages ticked up significantly, logging a 2.9% year over year increase. While the unemployment rate held steady at 3.9% month over month, labor force participation came in at 62.7% over the same timeframe. For those keeping track at home, labor force participation is down roughly 0.2%, the employment to population ratio is up 0.2%, and the unemployment rate is down 0.5% since this time last year. Revisions to previous reports reduced hiring numbers by a combined 50,000 for June and July, even as employment activity was strong across multiple sectors.

The Jackson Hole banker conclave has come and gone. Jay Powell is sticking to his path of gradual increases and that hasn’t been good news for emerging markets. Most recently, Argentina raised short term rates to 60% and requested funds from the IMF.  The Argentine peso joins Turkey’s lira, Brazil’s real, and the Russian ruble as currencies that have all lost more 10% of their value relative to the US dollar in 2018.  To be sure, currencies are something we pay close attention to and the ramifications of currency valuation jitters in the emerging world have been felt across the capital structure- debt and equity alike. As of this writing, EEM and EMB, exchange traded funds that track emerging market stocks and bonds, are down more than 10% and 6% year to date.

With all of the uncertainty in the world today regarding trade and tariffs, monetary and fiscal policy, geopolitics, valuations, et cetera it is very important to keep a clear view of the playing field- many times this helps one to avoid obstacles in his or her path. TWP remains strategically bullish USD, bearish duration, and bullish equities.  

Market Outlook: Bullish USD, Bearish Duration, Bullish Equities