Use, because the excellent job data equals a Fed rate hike

Investors don’t like the good news at this stage. The proof came on August 5 at 2.30pm, when the data on the labor market in the United States was published. In July, the new payrolls net of the agricultural sector (non farm payrolls) increased by 528 thousand units, more than double the expected 250 thousand and much more than the June figure (398 thousand). While unemployment remained unchanged at 3.5%. Stocks and bonds did not fare well with selling across the board. The Nasdaq lost more than one percentage point while 2-year Treasury rates went up to 3.25% and 10-year up to 2.8%, giving Eurozone rates a push too (Bund rising to 0.95 % and BTp again above 3%).

The reaction of the markets

How come? Because such a figure – although the labor market is notoriously a lagging indicator (i.e. it provides data on the past that does not offer projections on the future) – could push the Federal Reserve to think in more aggressive terms on the interest rate front (the next official appointment , the Fomc, is dated 21-22 September). The job data shows that so far, despite a 250 basis point hike orchestrated by the Fed from March to July, the US economy is proving resilient.

Even more important at this point will be the inflation data generated in July which will be published next week, on 10 August to be precise. Analysts expect a decline from 9.1% annualized recorded in June to 8.7%, strengthened by the simultaneous slowdown in commodity prices (oil dropped from June peaks to $ 120 to $ 90 a barrel, even more strong retracement of copper followed by many other industrial and agricultural commodities).

The game of rates begins

The fact remains that after the last data on work, the interest rate game has reopened. Futures on Fed Funds expiring March 2023 fell after the non-farm payrolls of 20 basis points to 96.35 (discounting on that level a level of rates close to 3.75% compared to the 3.5% expected before. of the publication of the numbers at work). It is no coincidence that on 5 August the best-selling securities on the stock markets were the technological ones, the most sensitive to fluctuations in rates. The same stocks that have recorded a 20% rebound from the lows of May, going to bet well in advance on a peak in inflation (and in the future a less aggressive Fed).

However, it should be reiterated that employment figures tend to lag behind the economic cycle. It is no coincidence that all the major recessions have taken place in conjunction with downward peaks in unemployment. There are also more future-oriented data and these are starting to show cracks in the ability of the US economy to withstand the blows of the Fed. These include the PMI indices, surveys on new purchases by the respective employees of private companies. The composite PMI (services and manufacturing) in July fell to 47.7 points, well below the threshold of 50 that marks the expansion from an economic contraction. Furthermore, the issue of excess stocks that have exceeded new orders cannot be ignored. In the past, whenever there has been this “overtaking” there has been a slowdown which in some cases has resulted in a recession. As a result of this, the phenomenon of re-stocking is gaining momentum, leading companies to sell at lower prices in order to free overloaded warehouses.

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Use, because the excellent job data equals a Fed rate hike

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