NFPanalysis,bondauctionandAlvinToffler

First Friday of the month is the day of NFP data in the US. In today’s note we will try to understand in detail some of the short and long term implications of this data point on the US as well as world economy.

NFP or non farm payroll is produced by the Bureau of Labour Statistics and is considered one of the most potent data points for the markets and policy makers alike. The Friday data which summarised the employment situation in the month of August 2020 showed that the total non farm payroll employment rose by 1.37 million (on par with expectations) in August and the unemployment rate fell to 8.4% (better than expectation). As per the BLS the notable job gains occurred in retail trade, leisure and hospitality and in education and health services.

The household survey accompanying the data release also shows how the unemployment rate fared for different working groups like adult men, adult women, teenagers, whites, blacks, Asians etc. The demographic split of the unemployment number becomes crucial as the election dates approach in the US. Readers would remember that the recessions and ensuing spurts in joblessness generally has a significant impact on election outcomes. Bill Clinton’s campaign against George Bush Senior in the 90s was primarily on the issue of jobs marked by provocative slogans and eventually won the day for him. It goes without saying that the election results would eventually not only impact the domestic policies but also the all-important strategic foreign calls.

One thing though which remains unchanged even with a largely positive jobs report is the short term interest rate outlook in the US. Generally a positive report would play like this: lower unemployment leads to more power for labour, resulting in wage growth, with wage growth leading to a consumption boom and ensuing inflation. Inflation would eventually prodding central banks to raise interest rates. But we are living in historic times currently with the Fed effectively decoupling itself from any data release with a promise to keep the rates low for a long time to come. Though we saw some good movement in long term yields with the 10 year US treasury yields moving from 0.65 to 0.72, essentially steepening the curve. Dollar Index trades at 92.90 just below the important 93 level.

The supplemental survey data also shows that 24.3% of the employed workers teleworked. With the total US employment number at 147.3 million and one fourth of which are doing the work remotely, it is not hard to understand the kind of rally in the technology stocks which we witnessed of late. The current reality seems straight from the books of futurist Alvin Toffler. In his 1970 book Future Shock, Toffler predicts the rise of technologies which will change the societal landscapes (not necessarily remote working). In the current scenario, the adoption of many such technologies which were always on the anvil has been accelerated and the future is well and truly upon us.

Domestically, the major news on Friday was the RBI Gsec auction for 300 bn INR worth of securities. The auction results were a mixed bag as no greenshoe exercise was a slight positive whereas a weal cut off in the 2025 paper led to weakness in the secondary markets. Post auctions a slight 2 bps sell off was witnessed across the curve. The new 10 year benchmark bond 5.77 2030 trades 5.9450 in the opening today. Rupee opens today at 73.17.