Uncertainty seems to be the only thing that's certain in this global investing backdrop. Several developed and emerging markets are presently struggling. The U.S. economy - once a star - also lost steam from the latter part of 2015. While China continues to mess up the global market with a spate of downbeat economic releases, the U.S. economy too delivered soft GDP numbers for the fourth quarter of 2015, putting its policy tightening stance into question.
As a result, all eyes were glued to the January U.S. job data as this could throw light on the Fed's rate hike decision. But like several other economic readings, the January job data also left investors perplexed. The January non-farm payroll reading of 151,000 was below the estimated 188,000 and the prior month reading of 262,000 (revised down from the originally reported reading of 292,000 jobs).
The unemployment rate fell to 4.9% from the month before representing the lowest level since February 2008, with the labor force participation rate ticking up to 62.7%. Other key indicators including workweek and average hourly earnings showed increases. Hourly earnings in January rose 0.5% month over month and 2.5% year over year.
Moreover, the figure came in better than expected. As far as revisions are concerned, the numbers were mixed with the December tally falling down (262K versus 292K) and November seeing a rise (280K versus 252K).
Imminent Rate Hike or Not?
This job picture gives fewer cues of the Fed's imminent course of action. Plus, the latest global issues, especially a flurry of policy easing, make the case for a near-term rate hike more ambiguous.
While wage gains raised hope for the domestic economy and bolstered the case for a further rate hike, a few investors might choose to look at the payrolls, which missed an already lower consensus estimate of 188,000. Investors should note that the estimate was nowhere near the December and November actual numbers.
No doubt, a snow-bitten January normally lacks seasonal strength in comparison to the prior two months and thus has a lower payroll estimate, but a missed job expectation in January blurs investors' vision.
However, investors should not forget that there is always room for positive revisions in monthly job numbers that might again spark off a debate over further Fed tightening. Whatever the case, several ETFs are depending on this payroll-related news for their future movement.
ETFs to Watch
Among them, top U.S. equities ETFs the SPDR S&P 500 ETF (NYSEARCA:SPY), the Dow Jones Industrial Average ETF (NYSEARCA:DIA) and the PowerShares QQQ Trust ETF (NASDAQ:QQQ) deserve special mention. Notably, this mixed job data couldn't lend a hand to these famous broader market ETFs. The trio - SPY, DIA, QQQ - was down about 1.9%, 1.3% and 3.5% respectively on February 5.
Other ETFs that are highly vulnerable to Fed decisions are the gold bullion ETFs including the SPDR Gold Trust ETF (NYSEARCA:GLD), which gained close to 1.6% post job data, indicating a still strong safe haven demand. The scenario was the same for the long-term U.S. Treasury bond ETFs like the iShares 20+ Year Treasury Bond ETF (NYSEARCA:TLT), which added over 0.1% on February 5, 2016. This was because of a drop in long-term U.S. Treasury bond yields on the same day.
The key U.S. dollar ETF the PowerShares DB US Dollar Bull ETF (NYSEARCA:UUP) added more than 0.4% on February 5, but shed 0.2% after hours. So far, all the movements hint at a bearish U.S. economy ahead.
However, investors should note that the short-term U.S. Treasury fund the Schwab Short-Term US Treasury ETF (NYSEARCA:SCHO) - with remaining maturity of greater than or equal to one year and less than three years - lost more than 0.1% on the day reflecting a rise in short-term bond yields. This is because of the fact that there is a group of investors who are focusing more on wage gains and have started betting on a March hike.