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LGT Navigator: How solid is the US labor market?

August 5, 2022

The monthly employment report from Washington is the focus of attention on financial markets today. On the one hand, it will show whether the recent economic slowdown, or de facto a recession, and the slump in consumer sentiment already had an impact on employment trends and, on the other hand, whether this will have an impact on the monetary policy stance of the Federal Reserve.

How solid is the US labor market?

After 372'000 new jobs were created in the United States in June and the unemployment rate remained at 3.6%, its lowest level in 52 years, analysts on average expect a slowdown in employment momentum in July, or 250'000 non-farm payrolls. According to the Federal Reserve's assessment, the US labor market has remained robust so far, thus supporting the orientation towards a more restrictive monetary policy, respectively rising interest rates. Today's statistics will provide information in this regard and thus also directly influence the interest rate landscape.

On the New York Stock Exchange, the stock indices consolidated after the mid-week recovery rally. The Dow Jones Industrial rose moderately by +0.26% to 32'726.82 points and the S&P 500 closed almost unchanged from the previous day at 4'151.94 points (-0.08%). On the Nasdaq, the indices gained almost half a percent, defending their strong gains of the previous day.

In Asia, the stock indices tend to close the week mostly in positive territory. In Tokyo, the Nikkei 225 recorded a daily gain of +0.80%, while in Hong Kong and Shanghai, the Hang Seng and the Composite index rose by around +0.1% and +0.3%, respectively. The stock market in Taiwan rose more than two percent on Friday despite increased geopolitical tensions following the visit of the Speaker of the US House of Representatives Nancy Pelosi. Meanwhile, in India, the central bank announced a 50-basis point rate hike to 5.4%.

Bank of England raises key interest rate by 50 basis points

Britain's central bank is sending out a clear signal in the fight against inflation with its biggest key interest rate hike since 1995. After the increase of half a percent, the key interest rate now stands at 1.75% – the highest level since the end of 2008. The financial markets had expected the new rate hike to be of this magnitude. There was one dissenting vote within the nine-member monetary policy committee. Since the end of last year, the British central bank has now raised the key interest rate six times. In the UK, the annual inflation rate recently climbed to 9.4% – the highest level in 40 years – and economists believe that inflation could reach levels around 15% by early 2023. In the latest forecast, Governor Andrew Bailey and his team expect inflation to fall back to 2% in two years as the expected economic slump slows demand. The economic outlook is fraught with “extremely large uncertainties” and next steps will be determined depending on how events unfold, the Bank of England stressed.

US trade deficit shrinks

The foreign trade deficit of the United States shrank again in June. The shortfall between exports and imports narrowed to USD 79.6 billion from USD 84.9 billion in the previous month. The third consecutive decline brought the trade deficit to its lowest level since the beginning of the year. Americans exported +1.7% more in the month under review than in the previous month, while imports fell by -0.3%.

 

Economic Indicators August 5

MEZ Country Indicator Last period
08:00 GE Industrial Production (June, m/m) +0.2%
08:45 FR Industrial Production (June, m/m) +0.0%
10:00 IT Industrial Production (June, m/m) -1.1%
14:30 US Unemployment Rate (July) 3.6%
14:30 US Non-Farm Payrolls (July) +372,000
14:30 US Average Hourly Earnings (July, y/y) +5.1%

 

Earnings Calender August 5

Country Company Period
GE Allianz Q2
GE Deutsche Post Q2
UK London Stock Exchange Q2

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

 

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