U.S. jobs data beats expectations, forex market rallies

(Reuters) - U.S. job growth surged in October after two straight months of tepid gains, with the unemployment rate hitting a 7-1/2-year low in a show of domestic strength that makes it almost likely the Federal Reserve will hike interest rates in December.

KEY POINTS:

* Nonfarm payrolls increased 271,000 last month, the largest rise since December 2014, the Labor Department said on Friday.

* In addition, average hourly earnings increased 9 cents last month. The solid gains added to robust automobile sales in painting an upbeat picture of the economy at the start of the fourth quarter.

* The unemployment rate fell to 5.0 percent, the lowest level since April 2008, from 5.1 percent the prior month. The jobless rate is now at a level many Fed officials see as consistent with full employment.

* Payrolls data for August and September were revised to show 12,000 more jobs created than previously reported.

COMMENTS:

PETER CARDILLO, CHIEF MARKET ECONOMIST AT ROCKWELL GLOBAL CAPITAL IN NEW YORK:

“The number was a strong, pleasant surprise. What we’re seeing here are the prospects of the Fed raising interest rates as early as December. If you dissect the report, there were some strong points to it.

"The fact that we’re down to 5 percent usually means full employment and the jump in hourly wages was on the high side. Participation rate basically stayed the same, but that decline that we saw in the unemployment rate is attributed to stronger hiring not due to a fall out in participation rate, so another sign of growth.

"The dollar is surging this morning and certainly the yield curve has flattened to a low level we haven’t seen in a while. Basically it’s a strong report and it plays into the hands of the Fed and raises the possibility of Fed raising rates in Dec, but I think there are other factors- you still have a very fragile economy in Europe, China is beginning to show stabilization but again, jury’s out on that. I think there’s enough slight chance they won’t but certainly if they’re hanging their coat on the jobs rate then this one would indicate they could raise rates but there are other factors out there.”

KATHY LIEN, MANAGING DIRECTOR, FX STRATEGY, BK ASSET MANAGEMENT, NEW YORK:

“The number was really, really good and for the most part I think you’re going to see an uptick in dollar momentum after this. Going into the number, even though many people thought NFPs were going to be strong, we didn’t see people positioning for a blowout NFP number so now that we have that and the data basically confirms the Fed is a go for December as long as nothing goes wrong with retail sales or December NFPs, I think you’re going to see a renewed appetite for U.S. dollars. The greenback’s already at 2-month highs vs the euro, the yen, and I think you’re going to see at least another two to-three percent gain within the next month.

“I think (the increase) is going to be sustained, particularly as the market reaction happened shortly after NFPs. I think it will be sustained and will continue in the coming week, as for the rest of the day I don’t think we’ll get too much additional push but maybe a slow, ascent higher. But overall this is a really good number. The sharpness of the reaction today indicates that traders had anticipated but not positioned for a blowout number and now that we have it they need to adjust accordingly.”

KEVIN GIDDIS, HEAD OF FIXED INCOME CAPITAL MARKETS AT RAYMOND JAMES IN MEMPHIS, TENNESSEE:

“This is a blow-out number... There’s a pretty strong feeling that the Fed is going to hike rates a quarter of a point in December... When you get an outsized number that is north of 125,000 higher than the previous number, that’s a significant event for the Fed.

“To get a four-tenth of one percent jump in average hourly earnings is equally as significant as the payrolls data. It is a very positive indicator for both wages and does pique our interest in potential inflation going forward."

SEAN LYNCH, CO-HEAD OF GLOBAL EQUITY STRATEGY AT WELLS FARGO INVESTMENT INSTITUTE IN OMAHA, NEBRASKA:

"I think it’s good news - it’s good news for the economy, eventually the market will take it as good news. The risk in today’s number was a very weak print because that would have brought more uncertainty back to the equity market. But it’s a blowout number, it’s a strong number for the jobs and the consumer should be feeling pretty good heading into the last couple of the months of the year.

"We’ve seen the past seven to ten trading days the likelihood of a Fed increase has been rising and yet we’ve seen the equity markets handle that pretty well. That was the risk a month ago or so and late August in how they would handle a rate increase. The fact is they have done pretty well the past seven to ten days in the face of those odds increasing. Today’s numbers probably reinforce the fact they probably move in December, that is our view as well, and we think the equity markets handle that OK. We think we could be set up for a little bit of a rally here into year-end."

JIM PAULSEN, CHIEF INVESTMENT STRATEGIST, WELLS CAPITAL MANAGEMENT, MINNEAPOLIS:

“It’s a very solid report. Definitely it will move up the Fed tightening to December. If wages continue to climb that’s going to start raising rates quicker, raise some fear that the Fed is behind the curve. 19 times (earnings on the S&P 500) is going to be challenging if the 10-year yield continues to rise.

"If the economy continues to grow the 10-year (yield) shouldn’t be near 2 percent but closer to 3 percent; I wonder how the stock market handles that.”

BRIAN JACOBSEN, CHIEF PORTFOLIO STRATEGIST, WELLS FARGO FUNDS MANAGEMENT, MENOMONEE FALLS, WISCONSIN:

“That was an astounding number. The uptick in the manufacturing workweek was also encouraging. It’s pretty clear that the Fed would be justified in hiking in December, if the economy doesn’t hit another air pocket.”

KURT BRUNNER, PORTFOLIO MANAGER, SWARTHMORE GROUP IN PHILADELPHIA, PENNSYLVANIA:

"It's obviously a pretty strong number and I think that it probably certainly has the Fed thinking that it might be time to raise interest rates, but it looks pretty solid across the board. Unemployment rate at 5 percent looks as though we saw decent growth across all sectors. Manufacturing’s a bit flat and mining’s not great, but there’s wage growth and I think it indicates that the economic growth in the U.S., while not fantastic, is steady and we’ll build on this. Yes, I think there’s the inflation questions and there’s broad global issues but I think we will see a rate increase in December."

TOM PORCELLI, CHIEF US ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:

“This is without question the sort of report that will continue to keep the hike conversation for December alive and well….For even those folks that have been doubters about it, this has to pull them to the other side in terms of that conversation. One number in and of itself will not dictate if a hike happens or not, but a number like this is hard to shrug off.”

(Americas Economics and Markets Desk; +1-646 223-6300)

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