QE still on the cards after US jobs data

The US Federal Reserves’ quantitative easing path is likely to remain on track after the latest batch of US jobs data showed that the US labour market remains in a sluggish state, boosting equities into the closing session of the week.

US non farm payrolls grew by 157,000 in January, broadly in line with analyst expectations whilst private payrolls rose 166,000, also meeting forecasts. Yet the real news was in the revisions to December’s figures, where both non farm and private payrolls were upwardly revised to 196,000 and 202,000 respectively. This means that December’s non farm payrolls figures were at the highest levels for almost a year.

However, the US unemployment rate nudged up to 7.9% from 7.8% unexpectedly, remaining stubbornly above the 6.5% Fed target for a ‘normalisation’ of the US labour market that may warrant and a reversal of its monthly asset purchasing programme.

This is the real question for traders and investors of course – will this set of jobs data affect the policy thinking within the Federal Reserve? The answer at this stage is most likely no. The unemployment rate remains significantly higher than the 6.5% target and now threatens to break back to 8%, whilst the monthly payrolls figures, and revisions in particular, are proving highly volatile. It would therefore be premature by the Feds previous communication to adapt their easing policy stance just yet.

Indeed, the data could be viewed therefore as a ‘double positive’ for stocks, with both an upward revision to payrolls pleasing and investor sentiment remaining calm in the sense that this is unlikely to warrant a monetary policy reversal at the Fed.

Stocks & Gold boosted
The market reaction was therefore broadly positive. Equity indices climbed higher with the FTSE 100 reaching a high on the day of 6330. The price of Gold increased by $18 within one hour of the US jobs data being released as investors bought into the precious metal on expectations of continued Fed support for QE. Heavyweight mining stocks, a key risk appetite area, led the charge higher in the London equity trading, with the sector rallying 1.8% on the day. Stocks such as Vedanta Resources, Anglo American and Fresnillo were all amongst the top gainers on the day as a result.