This jobs report is consistent with an inflationary boom. The Fed has a lot more work to do and in an odd way, that the Fed needs to get more aggressive in pushing up rates, makes the hard-landing scenario more likely.
*Fed-funds futures traders priced in a 66.5% chance of a 75 basis point rate hike in September, up from 34% on Thursday. Traders see a 33.5% probability of a 50 basis point move when the Fed next meets on September 20-21.*
“The economy is clearly firing on all cylinders as this morning’s job report showed growth across all sectors. The release should quiet the bears in the room who have been crying recession in recent days.
Strong jobs growth and moderating price inflation should help extend the current relief rally through the end of the year.
*The monthly employment report, however, is a lagging indicator. And investors and policy makers still have lots of data to sift through between now and the Fed’s September policy meeting. The next reading of the U.S. consumer-price index will be released next week.*
Friday’s extremely strong jobs data suggests that many businesses are not allowing recession fears to stand in the way of hiring. The jury is out on whether this robust pace of hiring can continue as many large and small companies have recently taken steps to slow hiring or even layoff existing employees.
*We believe next Wednesday’s Consumer Price Index data will weigh more heavily on Federal Reserve policy than Friday’s jobs report, as fighting inflation is the Fed’s top focus. U.S. annual consumer prices expected to jump by 8.7% in July after a 9.1% rise in June.*
*Here’s what else Wall Street is saying about the jobs surprise:*
Win Thin, global head of currency strategy at Brown Brothers Harriman & Co:
“Odds of a 75 basis point move next month have shot up, as they should. We still get one more jobs report before the September FOMC but barring a disaster, I think 75 bp then is a done deal.”
Eric Theoret, global macro strategist at Manulife Investment Management:
“For the Fed, this report confirms the need to continue tightening and also endorses much of this week’s Fedspeak that sought to jawbone rate expectations. For markets, the report may pose a challenge for rate-sensitive equities like tech which had recently been leading in terms of sector performance.”
Seema Shah, chief strategist at Principal Global Investors:
“All the jobs lost during the pandemic have now been regained. But while that is positive news, markets will take today’s number as a timely reminder that there is significantly more Fed hiking still to come. Rates are going above 4% -- today’s number should put to bed any doubters.”
Peter Boockvar, chief investment officer at Bleakley Financial Group:
“This was a great number with the obvious big upside in hirings but when this is happening at the same time GDP is declining, it means productivity is plunging. Also, as the pace of firing is at the highest level in nine months, this pace of hiring is just not sustainable.”
Keith Lerner, co-chief investment officer at Truist Advisory Services:
“Some of the conviction levels around recession are somewhat less. And I think that’s offsetting the other side of the equation which is, OK, that means the Fed will have to be more aggressive. So that’s why you’re netting this out to be a flat day because it really comes down to people questioning their confidence that we were in a recession, which was the primary reason why we were down.”
Despite being the focus of the day for traders, the jobs report supposedly has little value for those trying to predict a recession because it’s backward-looking.
Corporate earnings, combined with thin liquidity that’s common in the summer, took the stock market on a ride this week. Many firms beat expectations and proved they could handle high inflation and a gloomy economic outlook. But investors have resumed shunning global stocks in favor of bonds, according to Bank of America Corp. strategists, who say it’s time to step back from US equities after July
By: via @AlliesFin Serve Stock Market
