US Unemployment Rate at 3.9%... Biden's 'Cheers' Yet Weighs on Stock Market

Lowest Level Since COVID-19 Crisis
Employment Boom and Inflation Combine, March Rate Hike Certain
Government Bond Yield Hits 1.8% Intraday... Biggest Rise in First Week of Year Since 1973
Concerns Over Stock Market Downward Pressure Spread
Bitcoin Falls to $41,000 Range

[Asia Economy New York=Correspondent Baek Jong-min] The U.S. unemployment rate fell to 3.9% in December last year, fueling expectations that the Federal Reserve (Fed) will be more likely to raise interest rates in March and continue quantitative tightening within the year. U.S. Treasury yields pressured the stock market, reaching 1.8% intraday.

Trends in the U.S. unemployment rate (left) and nonfarm payroll employment (right). Source: U.S. Department of Labor

On the 7th (local time), the U.S. Department of Labor announced that nonfarm payrolls increased by 199,000 in December last year. Although this figure was significantly below the market expectation of 420,000, the notable point was that the unemployment rate dropped to 3.9%.

The unemployment rate, which was 4.2% the previous month, fell below 4%, approaching the pre-COVID-19 full employment level of 3.5%.

Although the number of jobs in the U.S. is still about 3.6 million fewer than before COVID-19, the unemployment rate alone suggests that employment has recovered.

The dominant analysis is that the employment increase fell short of expectations because fewer workers were seeking jobs. In November alone, 4.3 million people voluntarily resigned, while there were over 10 million job openings.

Wages are also on the rise. The average hourly wage increased by 0.6% from the previous month and 4.7% year-over-year, both exceeding market forecasts (0.4% month-over-month and 4.2% year-over-year).

Reactions from the political sphere and the market to the employment data were sharply divided. President Joe Biden welcomed it as a "historic day for economic recovery."

President Biden has given speeches every time employment data was released, but he had never welcomed the results as much as on this day.

On the other hand, after the employment data release, the New York stock market, which was rising in pre-market trading, showed mixed results. The Dow Jones Industrial Average rose slightly, but the Nasdaq index fell again.

US 10-Year Treasury Yield Trend

The Nasdaq's decline was due to a surge in the U.S. 10-year Treasury yield following the employment data release. The 10-year yield briefly reached 1.801% in the morning. As of 1:40 p.m., the 10-year yield was at 1.76%.

Bloomberg reported that Treasury yields have surged to unprecedented levels in early-year trading. According to Bloomberg's data, the 10-year Treasury yield rose at the fastest pace in the first week of trading since 1973. A rise in Treasury yields means a decline in bond prices.

The combination of employment recovery and rising wages provides grounds for the Fed to raise interest rates and implement quantitative tightening to curb inflation.

Charlie Ripley, Senior Investment Strategist at Allianz Investment Management, said, "The Fed must have been wide awake after seeing today's report," adding, "It would be surprising if the Fed did not consider removing accommodative monetary policy at the January Federal Open Market Committee (FOMC) meeting."

The Wall Street Journal also predicted that the Fed will definitely raise interest rates at the March FOMC meeting due to the strong labor market and soaring inflation.

Interest rate hikes are negative factors for the stock market. On this day, the Nasdaq index, which is centered on growth stocks, fell 0.7%, marking its fourth consecutive day of decline.

Peter Chatwell, Investment Strategist at Mizuho Securities, explained, "As Treasury yields rise further, the stock market is expected to decline further."

Cryptocurrencies are also continuing their weakness amid growing expectations of interest rate hikes. Bitcoin was trading around $41,400, down 3.5% on the day. The decline in Bitcoin prices is also analyzed to have been influenced by the unrest in Kazakhstan, which caused mining companies to halt operations.

This content was produced with the assistance of AI translation services.