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US job market keeps pressure on Fed to take another step

The US labour market dominated headlines to finish the week with slightly contradictory signals coming from different sources. After Thursday’s surprisingly strong ADP employment report, the official data from Washington on Friday showed some signs of cooling in the US jobs market. At the same time, however, hourly wages increased more than expected, which rather speaks for a continued restrictive monetary policy of the Federal Reserve to keep inflation in check.

Alessandro Fezzi, LGT
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Nonfarm payrolls were up 209'000 in June, a number below analyst estimates and the smallest gain since late 2020. Average hourly earnings, however, remained strong, up 4.4% compared with the same month a year earlier, according to the Bureau of Labor Statistics. The government data released Friday was more moderate than the ADP Research Institute’s employment report, released a day earlier, which showed nearly a half of a million new jobs created during the month. Altogether, the data depicts a labour market that can likely withstand further rate hikes from the Federal Reserve (Fed). Against this backdrop, a further interest rate hike by the Fed on 26 July cannot be ruled out.

In New York, pessimists prevailed in late trading. The Dow Jones Industrial closed at 33'734.88 points 0.55% lower, ending the first week in July with a loss of nearly 2%. The S&P 500 ended Friday down 0.29% at 4'398.95 points and the technology-heavy Nasdaq 100 fell 0.35% to 15'036.85 points. Even the labour market sent mixed signals, another interest rate hike by the Fed at the end of July could be still in the cards. Meanwhile the yield on ten-year Treasuries stands at 4.07%.

Looking at single stocks, Facebook mother company Meta is still making headlines. The competitor app to the short message service Twitter, which was launched under the name Threads, is reported to have already reached 70 million users. Twitter is now threatening Meta with a lawsuit.

The focus this week will be on the latest data on US consumer prices and the Fed's regular economic report, the so-called Beige Book, on Wednesday. At the end of the week, the corporate reporting season for the third quarter will start with the balance sheets of the major US banks.

Stock markets in the Asia-Pacific region are mixed ahead of key US inflation reports this week. In the region, China’s consumer price index came in flat in June year-on-year, its lowest level since February 2021. Meanwhile, producer prices fell 5.4% year-on-year, the fastest rate of decline since December 2015. In Tokyo, the Nikkei 225 fell 0.87%, extending losses after dipping more than 1% on Friday. South Korea’s Kospi was 0.26% higher, while the Kosdaq saw a loss of 0.33%. On Thursday, the Bank of Korea’s interest rate decision will be closely watched. Australia’s S&P/ASX 200 rose 0.15%. Hong Kong’s Hang Seng index rebounded and climbed 1.57%, with mainland Chinese markets also all higher. The Shanghai Composite gained 0.38% and the Shenzhen Component rose 0.56% on Monday.

US Treasury Secretary Janet Yellen ended her four-day trip to Beijing on a positive note. According to Yellen the talks have put bilateral relations between the two world powers on a "secure footing", even there remain "significant differences of opinion".

Corporate news in focus: Austrian energy group OMV publishes Q2 revenues.

Economic data in focus: Sentix eurozone investor confidence July (10:30 CET), Bank of England Governor Andrew Bailey speaks at the Financial and Professional Services Dinner (21:00 CET).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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