Strong labour market data point to further tightening measures

Spread the love

The equity market was in despair as major indices fell sharply through the trading session, only to recover sharply in the later trading hours.

The latest labour data was the culprit. The logic is clear: for inflation to moderate, the Fed has to see that the labour supply is fairly in line with general labour demand.

Now, the job markets are still out of such delicate equilibrium. The ADP job data showed that the job market remained ultra-hot to reach the Fed’s aim.

Indeed, we are seeing an additional 497,000 jobs in June, almost double the consesus 250,000 economists had expected.

Bond markets reacted to labour data.

We saw the 10-year Treasury yield spiking after the release of data release, and the S&P 500 and Nasdaq came crashing down, unable to bounce up.

With the Treasury replenishing its cash coffers, we could see more downside risk to equity markets as it could dry up liquidity too.

Rate-Sensitive sectors see progress.

However, Pika World will like to share that despite all the downbeat sentiments on good labour data, there is a silver lining in the stormy sky.

First, we had seen some rate-sensitive industries having job decline. This is a sign that the Fed’s monetary tightening policy is working.

Moreover, there is continued pressure on employment by large corporations.

The second positive sign is the initial jobless claims which are higher than the 248,000 expectation. This is another proof of some softness in the labour market, although not strong enough for the Fed to pivot.

The third point is wage growth. The ADP report reflected a significant drop in pay increments. Americans that had changed jobs saw only an 11.2% pay rise in June, the slowest growth since October 2021.

For those who remain in their current role, the gain in salary is about 6.4% on an annual basis, which is a trickle-down from the 6.6% record seen in May.

Disparity on the effects of job gains

One word to describe the hiring across sectors: Uneven. Yes, a general tide didn’t lift the whole labour market.

We saw strength in hiring among the lower-paying sectors, such as leisure and hospitality, while the information and finance sectors are pulling back in headcount.

What’s on the menu today?

Market your calendar at 8.30 pm as we will usher in a series of job data ranging from hourly earnings to nonfarm payrolls, unemployment rate, etc.

This is the highlight for the week before we wrap up a turbulent start of July. We expect significant weight given to today’s data as investors become increasingly uncomfortable with a rosy labour market.

It is 7 July, Friday, 9 am in Singapore and 9 pm in New York. We pared off our trading positions yesterday as we turned more conservative to preserve our capital and gains given a more volatile trading environment.

We hope you have a profitable final trading of the week!