Private Jobs Surge Spooked Wall Street, Now Turning to the NFPs
Jobs, Jobs, Jobs
This week is all about jobs, as the closely watched June US Jobs Report is due later today (12:30 GMT). The last report had shown an uptick in inflation, while unemployment had increased to 3.7%. However, wages are elevated and unemployment close to its five-decades lows, while the 339,000 jobs added marked the biggest increase since January.
The Federal Reserve held rates unchanged in June, but the updated projections suggest an additional 50 basis points of hikes this year [1]. Inflation has been coming down, but is still far from the 2% target, with core reading particularly sticky. At the same time, the strength of the economy continues to defy expectations, having expanded by 2% in Q1.
More to it, the tight labor conditions call for a sustained restrictive stance and make it hard for policy makers to back down. Chair Powell alluded to that, in his recent speech on ECB's forum in Sintra. He warned that there is "more restriction coming" and what is driving it is a "very strong labor market". [2]
So investors are particularly attuned to the employment data and there was a slew of them on Thursday, a day ahead of the NFPs. What stood out was the ADP report, which revealed the addition of 497,000 jobs in the private sector, in the biggest increase since December 2021. Furthermore, the Challenger data showed that layoffs dropped to 40.79K in the same month and the lowest since October.
These data spooked stock and bond markets, since they reinforce the higher-for-longer prospects and increase chances of tow hikes by the Fed. CME's Fed Watch Tool prices in a hike to 5.5% by the Fed this month and assigns the highest probability to this being the terminal rate. After yesterday's data though, chances for one more hike in September increased to 25.2% at the time of writing [3]. SPX500 lost around 0.8% on Thursday and the US 10 Year Note set new 2023 lows.
However, JOLTS Jobs openings in May increased to 9.8 million, while ADP's Chief Economist Nela Richardson, said that wage growth in the industries that led the June job surge "continues to ebb" and hiring "likely is cresting" [4]. Taking all of Thursday's employment data together, there are signs that the labor market may be moving towards an equilibrium.
Markets now turn to today's NFPs report for more insights into the employment situation, while the outcome will weigh into the Fed policymakers decision, due later in the month.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 07 Jul 2023 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20230614.htm | |
| Retrieved 07 Jul 2023 https://www.youtube.com/watch | |
| Retrieved 07 Jul 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html | |
| Retrieved 17 May 2024 https://adpemploymentreport.com/ |
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.