Market wrap:  US equities surged Friday - Westpac

In a market wrap, analysts at Westpac explained that US equities surged Friday on the combination of very strong job creation but slower wages growth. 

Key Quotes:

"US non-farm payrolls surged 313k in February, the strongest reading since July 2016 and significantly stronger than expectations (205k). The strength was accentuated by a large 54k in upward revisions to the prior two months. Unemployment however was steady at 4.1%, as more than 806k people entered the labour force - the largest one time increase outside census hiring since 1983.

But average hourly earnings surprised on the downside, rising a modest 0.1% m/m, trimming the annual pace to just 2.6%, from a revised 2.8% in Jan. Recall that the original print of 2.9% in Jan was the strongest since 2009, sparking much discussion of how the tight labour market was finally producing significant wage acceleration and how this meant the Fed would need to raise rates faster. It seems that the debate will continue.

Chicago Fed president Evans stuck to his dovish leanings, saying the Fed should wait for further inflation data before hiking. St. Louis’s Bullard took a similar line. Centrist-hawk Rosengren (Boston) said four hikes were needed in 2018, encouraged by fiscal stimulus, tax cuts, and global economic strength.

FX markets were somewhat mixed, with risk-sensitive currencies mostly outperforming. AUD/USD bounced from 0.7795 to 0.7820 on the US jobs report, extending its rally to above 0.7850 in Friday NY trade. Over the weekend, Australian PM Turnbull confirmed that Australia would be exempted from the US’s steel and aluminium tariffs. NZD/USD added 30 pips to 0.7290 on the data, falling a little short of the Aussie’s gains, such that AUD/NZD rose 0.4% to 1.0765.

EUR/USD was choppy at times but flat overall just above 1.2300. GBP and CAD both posted modest gains against the US dollar. USD/JPY had already risen in Tokyo trade as the Bank of Japan maintained loose monetary policy and showed little reaction to the US data.

The US 10yr treasury yield rose 4bp, from 2.87% to 2.91%, before closing the day at 2.89%, while 2yr yields rose from 2.26% to 2.28% and then retraced. Fed fund futures continued to price three more hikes by end-2018 and another hike in 2019."