Payrolls surprise, another yen rise

Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

Wall Street wobbled and Treasury yields rose on Wednesday following the release of stronger-than-expected U.S. jobs data, while Japan's yen extended its strong post-election rally for a third day. 

In my column today, I look at U.S. workers' share of GDP, which has slumped to the lowest on record, and ask whether a productivity boom might reverse this multi-year trend. In theory, it could. In practice, it's highly unlikely.

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

* Maybe not so 'clueless' after all?

The delayed January U.S. jobs data on Wednesday showed that the economy created 130,000 new jobs last month, nearly twice the amount forecast, and the unemployment rate eased back to 4.3%. Earnings growth of 3.7% was stronger than expected too.

Putting to one side the annual revisions and issues around shrinking labor supply, these headline numbers suggest the labor market is stabilizing and the Fed can afford to stay on pause for longer. Just as Chair Powell has indicated. Maybe he's not as 'clueless' as President Trump would have us believe? 

* It's reigning yen

Japan's currency is on a tear, extending its post-election rally and clocking a third daily rise against the dollar of around 1%. It's on course for a weekly rise of 3%, which would be the yen's best week since November 2024. 

What's interesting about Wednesday's rise is it came while the dollar was rising more broadly. The yen's immediate test is 152/$ then 148/$, where it was just before PM Takaichi won the LDP leadership contest. Once it's back there, the political risk premium is essentially been taken out its price.

* AI - end of days or brave new world?

The direction of travel isn't in doubt, but the speed and ultimate destination are. Assessing, quantifying and predicting artificial intelligence's transformative powers are dominating equity markets - we are in the relatively early stages of the AI revolution, so divergence, dispersion, and volatility reign.

Among the findings in a Morgan Stanley report this week are: upward earnings revisions for AI Adopters have outpaced the AI-Disrupted by ~2x; AI-driven benefits over the next two years will be heavily skewed toward cost efficiency over revenue growth; AI adoption expected to benefit 49% of North America stocks covered, 37% in Asia, 43% in Europe. 

U.S. labor's share of national income has fallen to 53.8%, the lowest since records began. Could a strong, accelerating productivity growth improve workers' lot?

In theory, yes. Rising productivity generates more income for companies, which can be funneled into higher wages for employees. As PIMCO's Tiffany Wilding notes, AI could lower prices in key sectors like healthcare and business services, boosting real incomes even if nominal wages don't surge. 

But there's a gloomier - and more likely - scenario.

Find ROI on the Reuters website, and join the debate on LinkedIn and X.