For the time being, good news is actually good news
US payrolls for October were strongly ahead of market expectations with a 261k increase compared to a forecast increase of 193k. Average hourly earnings also came in slightly ahead of forecasts and these both continue to force the Federal Reserve’s (Fed) hands on hawkish interest rate policy in its anti-inflation battle. Short-dated bonds are pricing in an ever higher terminal Fed funds rate emphasising that the bond market’s view is catching up with the Fed. The equity market is boosted by this strong economy messaging but at some point, higher rates have to weaken growth. However, for the time being, good news is actually good news.
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