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On July 17, 2017, a help wanted sign is put at a taco stand in Solana Beach, California, United States. Mike Blake/REUTERS/File Photo Reuters, NEW YORK, July 2 – As markets applaud more indications of a healthy economic recovery amid concerns about ongoing inflation, a stronger-than-expected US jobs report is focusing investors’ attention on economic data and the Federal Reserve’s next move. According to Friday’s report, US employers hired the most workers in ten months in June, upping wages to tempt millions of unemployed Americans staying at home in a preliminary hint that the economy’s labor shortage was beginning to ease. find out more While the initial market reaction to the report was positive, with stocks rising to new highs and Treasury yields only slightly lower, investors said the data did little to allay fears that a strong recovery and rising wages would force the Fed to begin unwinding its easy money policies sooner than expected. That dynamic might weigh on financial markets this summer, as investors await the Fed’s July monetary policy meeting and August symposium in Jackson Hole, Wyoming, after the central bank’s hawkish move last month caused several days of market volatility. Minutes from the central bank’s most recent monetary policy meeting, which are expected to be released next week, may provide provide insight into policymakers’ thinking. Priya Misra, head of global rates strategy at TD Securities, said, “I think the market is torn.” “Better data should generally imply higher rates, but if the Fed is obliged to exit sooner, the economy will be slowed.” Despite the fact that US stocks are reaching all-time highs, several analysts have noticed signs of concern in various parts of the market. Concerns about the COVID-19 Delta variant’s spread have hurt on tourism and leisure companies and economically sensitive value stocks, while concerns about a potentially more hawkish Fed are among the factors keeping US government bond yields low. find out more Investors have also noticed a concentration of the market’s gains on a smaller number of equities in recent weeks, which some see as a sign of decreasing confidence in the broader market. (nL2N2OD34J) According to the Labor Department, nonfarm payrolls climbed by 850,000 jobs in June after increasing by 583,000 in May. As a result, employment is now 6.8 million jobs lower than it was in February 2020. Last month, average hourly earnings increased by 0.3 percent, bringing the year-over-year wage growth to 3.6 percent from 1.9 percent in May. Concerns about inflation were more visible in the bond market, where 10-year Treasury rates have been stuck in a range since reaching a high of 1.776 percent on March 30. Yields dropped to 1.431 percent on Friday, while the S&P 500 stock index (.SPX) rose roughly 0.61 percent to a new high. “I’d assume the Fed hikes sooner and/or quicker than two rates in 2023 due to labor market concerns,” said Tom Graff, Brown Advisory’s head of foreign fixed income. “This implies that the non-transitory phase is likely closer than the Fed admits.” According to Rick Rieder, chief investment officer of global fixed income at BlackRock, Friday’s news should push the Fed to focus more on decreasing its assistance for the economy at its forthcoming August meeting. “Today’s payroll report confirms that the economy is bursting at the seams with demand (especially for qualified workers) and that supply is the only thing holding it back,” he said. David Randall contributed reporting.
Chizu Nomiyama did the editing.
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