02 August 2024
If you are covering the latest employment data from the US, please see the following comment from CJ Cowan, portfolio manager at Quilter Investors:
"In July, the U.S. labour market showed signs that it is cooling more than previously thought. The Labour Department’s nonfarm payrolls report indicated an addition of just 114k jobs while June’s figure was revised down to 179k from 209k. Meanwhile the unemployment rate increased by 0.2% to 4.3%.
"This data release is notably weaker than expected and the bond market reaction suggests concern that the economy might be weakening more than is consistent with the Fed’s aim for a soft landing.
"Recently, Fed Chair Jerome Powell noted that the jobs market is no longer a source of inflationary pressure and earlier in the week he strongly hinted towards a rate cut in September. This data continues to support a rate cut at the Fed’s next meeting and there will now be more speculation of a 50bp cut, although this would not be our expectation.
"While the latest earnings season in the US has generally been OK, the recent wobble in equity markets appears to have been driven by some high-profile earnings misses (e.g. from Intel) and further softening in economic data prior to today’s release. This Labour market data will likely add some fuel to the fire.
"With more than 2% of rate cuts priced over the next year there seems to be a dawning realisation that if cuts of this magnitude are delivered then the earnings growth priced into equity markets may be too optimistic. The other side of this coin though is that if growth does hold up then 2% of cuts probably won’t be delivered."
