by Bill O’Grady and Kaisa Stucke

[Posted: 9:30 AM EDT] Happy employment day!  We will go into much more detail below, but we are seeing solid improvement in the labor market.  Most importantly, the labor force is finally starting to expand; in fact, the unemployment rate rose this month in a good way as the labor force expanded faster than employment.  We have also seen a rise in wage growth, although it still remains soft.  The market is taking the data as hawkish, leading to higher interest rates today and a stronger dollar.

There were two overseas developments of note overnight.  First, China’s PMI data (see below) came in better than forecast, with the Caixin PMI number reaching 49.7, the highest report in 13 months.  The official report hit 50.2, above the 50 expansion line and a nine-month high.  Although some of this may be due to the timing of the New Year’s holiday, it does appear that stimulus measures are starting to have an impact, which is a good sign.  Second, Saudi Arabia’s Deputy Crown Prince Salman conducted a long interview with Bloomberg overnight.  The primary short run news is that the kingdom does not intend to freeze oil output unless Iran does as well.  This scotches hopes that OPEC + Russia were on the brink of a production deal; oil prices have fallen as a result.  Salman also suggested that the kingdom would only sell 5% or less of Saudi Aramco and would create a massive $2.0 trillion sovereign wealth fund to support the kingdom’s efforts.  Although the value of the wealth fund appears massive, in fact, it looks like Saudi Arabia will simply put Saudi Aramco in the fund which will become the bulk of its assets.  The most important takeaway from the interview is that Saudi Arabia is in no hurry to support an oil price recovery.

View the complete PDF