On Friday 6th November 2015 the USA October nonfarm payroll data was released. The markets went crazy.
The data showed October employment rising 271K vs. an estimated 185K. Two year treasury yields jumped 14% and the dollar gained 2¢ on the euro reaching $1.07 to €1.
Nonfarm payroll is a statistical representation of the total number of US workers. The figure excludes general government employees and, you guessed it, farm employees. The statistic is released on the first friday of every month and accounts for 80% of workers.
Why do Nonfarm Payrolls matter?
- The Federal Reserve has indicated a few main factors that will determine the timing of an interest rate rise.
- These include inflation and unemployment figures.
- The Nonfarm Payroll is a key, and widely recognised, statistical display of the health of employment in the US.
- The October results surprised the markets, beating estimates comfortably. Now with unemployment at 5% it is more likely the Fed will raise interest rates sooner than later.
Two-year bond yields rose?
- Correct. If interest rates rise then new bonds will be issued with higher rates. This makes older bonds less desirable, so they are sold off.
- Selling bonds reduces their price and therefore increases their yield.
The dollar appreciates?
- Increasing interest rates in the US makes depositing your cash in US banks relatively more desirable than in say the UK where interest rates are still near zero.
- This increase in demand for $ currency will appreciate it.
- The markets are acting efficiently by pricing this new information in.
There is now a 70% chance of a rate hike in December.
The stock to eye up if rates rise: Financials.