Services jobs behind strong payrolls numbers

SERVICES JOBS BEHIND STRONG PAYROLLS NUMBERS (1240 EST/1740 GMT)

Friday's much-stronger-than-expected non-farm U.S. payrolls report could be tied to the services sector, according to a note from Rick Rieder, chief investment officer of global fixed income and head of BlackRock's global allocation investment team.

"The fact is that the service sector still hasn't seen job-hires return to pre-pandemic levels," in healthcare, education and leisure and hospitality, he wrote in a note Friday.

That's happened even as some finance and technology companies have announced layoffs, he noted.

The U.S. job market is still down more than 730,000 jobs "according to what trend levels would suggest" in the nursing, residential care and accommodations industries, Rieder wrote.

As a reason behind this shortage, Rieder said it may be that too many people in the 55 and older age bracket retired over a short period of time in recent years.

"This demographic group represents about a third of the population in the U.S. and a remarkable number have retired over the past few years, likely due to wealth creation, quality-of-life considerations, or health concerns," he wrote.

At the same time, more jobs have been filled over the past few years through immigration, "with a significant number of all the people hired over the past few years coming from international sources."

(Caroline Valetkevitch)

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BULLS AND BEARS FACE OFF -AAII (1108 EST/1608 GMT)

Individual investor optimism over the short-term direction of the U.S. stock market improved in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, pessimism dipped, while neutral sentiment ticked higher.

AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, increased 1.5 percentage points to 29.9%. This is the highest level of optimism registered by the survey since Nov. 17, 2022 (33.5%). In any event, bullish sentiment remains below its historical average of 37.5% for the 57th consecutive week.

Bearish sentiment, or expectations that stock prices will fall over the next six months, slipped 2.1 percentage points to 34.6%. This is the first time since January 2022 that pessimism is below 40% for four consecutive weeks. Bearish sentiment is above its historical average of 31.0% for the 60th time out of the past 63 weeks.

Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, edged up 0.6 percentage points to 35.5%. Neutral sentiment is above its historical average of 31.5% for the fifth consecutive week. At five weeks, this is the longest streak of above-average neutral sentiment since a five-week stretch in March and April 2022.

With these changes, the bull-bear spread narrowed to -4.7 percentage points from -8.3 percentage points last week:

The current reading is still below the historical average of 6.6%. The bull-bear spread was last in positive territory on April 1, 2022.

AAII noted that concerns over the economy, inflation, corporate earnings and stock market volatility continue to "cause many individual investors to maintain a cautious short-term outlook."

(Terence Gabriel)

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U.S. STOCKS DECLINE AS HOT JOBS STOKE FEAR OF FED (1010 EST/1510 GMT)

Wall Street's main indexes are lower early on Friday after data showed the economy added jobs at a rapid pace last month, feeding into fears that the Federal Reserve could keep interest rates higher for longer in its fight against inflation.

That said, there has been some recovery off early lows. The Nasdaq IXIC, which opened more than 2% lower, is now off less than 1%.

Still, nearly all S&P 500 SPX sectors are red with interest-rate sensitive utilities S5UTIL and real estate S5REAS taking the biggest hits. This, as the U.S. 10-Year Treasury yield US10Y is surging back over 3.50% from 3.40% on Thursday.

Banks (.SPXBK) and energy SPN are providing glimpses of green.

Here is a snapshot of where markets stood around 1010 EST:

(Terence Gabriel)

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IS JAN PAYROLLS THE REALITY CHECK MARKETS NEEDED? (0951 EST/ 1451 GMT)

After the Labor Department's closely watched employment report showed a rapid increase in January job growth, markets are now reassessing whether the Federal Reserve will indeed take its target rate above 5%.

Nonfarm payrolls showed 517,000 job additions in January, almost three times expectations of 185,000 additions, highlighting that the Fed's rate-hiking spree did little to shake the resilient U.S. labor market.

Markets are finally waking up to the reality of just how dire the situation could be in terms of the Fed having to really continue to push rates up, according to Brandon Pizzurro, director of public investments at Guidestone Capital Management in Texas.

The data also came in just as investors cheered Fed Chair Jerome Powell acknowledging that inflation was starting to ease after the U.S. central raised rates by a quarter of a percentage point on Wednesday.

Markets kicked off the year on solid footing, backed by hopes that the Fed would deliver just one more rate hike in March before calling it quits, but the blowout jobs reading has many expecting at least two more increases.

This would take the peak rate above 5%, a level repeatedly backed by Fed officials, a stark contrast to markets pricing in rate cuts by the end of the year.

"It's going to get harder to argue that rate cuts may be in 2023's future if the labor market is able to continue like this," said Mike Loewengart, managing director at Morgan Stanley.

(Shreyashi Sanyal, Ankika Biswas)

U.S. STOCK FUTURES RED ON HOT JOBS NUMBER, DISAPPOINTING TECH-TITAN EARNINGS (0900 EST/1400 GMT)

U.S. equity index futures are under pressure in the wake of the release of the latest data on U.S. employment.

The January non-farm payroll headline jobs number came in at 517k well above the 185k estimate. The unemployment rate was 3.4% vs a 3.6% estimate. Of note, wage data, on a month-over-month basis was in-line with the Reuters Poll, and slightly above the estimate on a year-over-year basis:

According to the CME's FedWatch Tool (FEDWTACH), the probability of a 25 basis point rate hike at the March FOMC meeting has now risen to around 95% from 83% just before the numbers were released. There is now around a 5% chance that the Fed sits on its hands in March from around 17% just before the data came out.

CME e-mini Nasdaq 100 futures NQ1! are leading U.S. equity index futures lower, sliding around 2%. In the wake of disappointing tech-titan earnings reports, the futures were down around 0.8% just before the numbers came out.

Nearly all of the 11 S&P 500 sector SPDR ETFs are quoted down in premarket trade, with FANG groups such as consumer discretionary S5COND, communication services XLC and tech XLK taking the biggest hits. Energy XLE is rising slightly, while staples XLP are around flat.

Regarding the jobs data, Quincy Krosby, chief global strategist, at LPL Financial said, "Certainly it's way above the consensus estimate. This is not what the market wants to see, nor is it what the Fed wants to see at this stage."

Krosby added, "This is kind of report that you want to see when coming out of a recession to signal strength in the economy, not when the futures market is looking at the Fed finishing its rate hike cycle."

Here is a premarket snapshot:

(Terence Gabriel, Caroline Valetkevitch)

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