Non-Farm Payrolls blew away expectations, adding 336,000 jobs for the month, almost double expectations. This was an unexpected and very strong number, reinforcing the fact that the US labour market remains hot. This is a nightmare number for the Federal Reserve. The Fed needs the labour market to cool, to relieve pressure on the economy and inflation. This is not happening. Bond Yields surged again towards 16-year highs, as expected, but equities confounded and rallied. The share market was obviously oversold. A hot labour market will drive inflation and interest rates north and equities lower, so this was a conundrum. The equity market contradiction translated directly into the currency market, as the US Dollar dipped lower, instead of an expected rally from higher bond yield support? The EUR heads back towards 1.0600, while the GBP consolidates above 1.2200. This aberration in market moves will likely be rectified this coming week.
The softer reserve allowed commodity currencies to recover further, with the NZD heading back towards 0.6000, while the AUD looks to regain 0.6400. The coming week will begin slowly, with the US Columbus Day holiday, but will then focus on inflation and growth. German and US CPI numbers are due for release and are expected to fall sharply. If inflation remains dogmatically high, then Central banks will be forced to reconsider any ‘peak inflation’ assumptions.