Michael Every, Head of Financial Markets Research at Rabobank, suggests that the US January payrolls data was the latest in a series of US macro data that strongly suggest that the Fed has once again got it magnificently wrong on the rates front: after all, the gain in jobs was just 151K vs. 190K expected and 262K in December. Key Quotes “Yet that was counter-balanced by an unexpected drop in the unemployment rate to a fresh cyclical low of just 4.9% (the last time we saw that was in February 2008) and also by a surprising 0.5% m-o-m rise in average earnings (vs. 0.3% consensus and 0.0% in December). For the Fed this presents a real dilemma. Is the US finally breaking out of the long-running rut which has seen plenty of new jobs, but ones that pay little? In that case, more Fed tightening lies ahead despite the pain that will bring EM and global markets. Worse, are these data a lagging indicator that has already been trumped by the slow-down underway, in which case higher rates will be even more damaging? Or, as I would still contend, is the January number likely another outlier in a long-run structural trend towards a bifurcated global jobs market split between a lucky few well-compensated professions and a mass of others that are not? In that case, we are heading deeper into territory that can only bring ever more mischievous ‘new normality’ such as negative bond yields. On that front, note that US 10-year yields closed Friday at 1.84%, which hardly suggests they are worried about wage inflation on the horizon, while 2-year yields only rose to 0.72% when they were touching 1.10% back in late December.” For more information, read our latest forex news.