Daily Comment (March 10, 2017)

by Bill O’Grady, Kaisa Stucke, and Thomas Wash

[Posted: 9:30 AM EST] Happy Jobs Day!

The February jobs report was generally positive, with payroll easily beating estimates at 235k compared to the forecast of 200k.  Wage growth was pretty strong, coming in line with expectations at 2.8%.  Equities have responded positively to the data, whereas bonds fell sharply this morning.  The report shows support for a fed increase next week and if this trend persists we expect the fed to meet its prediction of three rate hikes this year.

South Koreans have taken to the streets after the Constitutional Court upheld the legislature’s impeachment vote of President Park Geun-hye.  Park was accused of using her office to benefit colleagues.  She will be the first president to be impeached from office in South Korea.  Protests in response to the court decision were swift and have turned violent, with at least two deaths and several injuries reported.  Park’s removal from office comes at a peculiar time in which tensions between North and South Korea have risen.  In addition, her administration was an ally to the U.S. and it is unclear whether this favor will carry over to the next administration.

Elections for her replacement will take place on May 6, with the early favorite being Moon Jae-in, who narrowly lost to Park in the 2012 election.  Moon has supported the idea of a “balanced diplomacy” in which Korea maintains its relationship with the U.S. while also increasing its ties with China.  He also supports building a relationship with North Korea.  It is unclear how Moon would handle the deployment of THAAD, an anti-missile system to counter aggression from North Korea.  In the wake of North Korea’s recent missile launches, China has been vocal about its displeasure with THAAD being built so close to its border.

In Europe, a leaked report from Madrid shows that Spain could lose an estimated 1 billion euros in exports as a result of a hard Brexit.  News of the possible economic consequences of Brexit on the Spanish economy is not surprising but probably a bit exaggerated.  The proximity of the two countries to one another make them convenient trading partners, although it is worth noting that the pound’s relative strength to the euro has benefited Spanish goods and made Spain a popular travel destination for many Brits.  Therefore, it is not surprising that Spain would try to push for better terms for the UK.  That being said, the recent depreciation of the pound has yet to have a negative impact on the Spanish economy as its GDP expanded 3% year-over-year in Q4.

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