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LGT Navigator: Solid US labor market keeps Fed on course to tighten interest rates

August 8, 2022

In the US, the employment trend remained surprisingly robust in the summer and gives the Federal Reserve every reason to continue to put the brakes on monetary policy. On Wall Street, the strong job market report, and the associated prospect of further rising interest rates caused initial losses. Meanwhile, geopolitical tensions between the US and China continued to heat up after Beijing imposed sanctions on Pelosi, the Speaker of the US House of Representatives, and halted dialogue on climate change, military issues, and other cooperation.

Solid US labor market keeps Fed on course to tighten interest rates

The US economy added significantly more jobs than expected in July. At 528,000 new jobs created (excluding the farm sector), the gain was significantly above the market consensus of 250,000 nonfarm payrolls. In addition, employment was even stronger than previously thought in the two previous months - a total of 28,000 additional jobs were counted. At the same time, the unemployment rate fell from 3.6% to 3.5% and hourly wages rose more than expected. On average, hourly wages in the US increased +0.5% month-on-month and +5.2% year-on-year.

Wall Street absorbs confirmed outlook of further monetary policy tightening

Against the backdrop of a continued robust labor market and rising wages, the Federal Reserve remains challenged and will continue its chosen path of steadily raising interest rates. On Wall Street, the surprisingly strong US labor market report on Friday weighed on stock indices, however, Dow & Co recovered during the trading day. The Dow Jones Industrial closed +0.23% higher at 32,803.47 points and the S&P 500 went out at 4,145.19 points (-0.16%). On the Nasdaq 100, the indices declined by about -0.8%.

In the wake of the strong labor market report, US government bond prices came under pressure and the yield of ten-year Treasuries climbed in turn from 2.65% to 2.85%. In the foreign exchange market, the US dollar strengthened after the labor market data and pushed the euro below the 1.02 mark.

In Asia, the stock market indices started the new week differently. In Tokyo, the Nikkei 225 index gains about +0.3%, while the Hang Seng in Hong Kong trades about -0.7% lower. In Shanghai, the Composite Index trades just in positive territory.

Social and climate package of the US democrats adopted with a narrow majority

The Senate in Washington gave the green light to a bill for investment in the social sector and climate protection with a very narrow majority of 51 votes. Republicans voted unanimously against the package. The bill is intended to curb inflation, create millions of jobs, and increase energy security. Now the House of Representatives still must agree, but as is well known, the Democrats have a majority there. For US President Joe Biden, the law is certainly an important success, but so many compromises had to be made that the package contains only a fraction of the originally defined goals.

Europe's industry increases production despite difficult environment

German industry increased its production by +0.4% in June compared to the previous month and in contrast to the -0.3% decline forecast by economists. However, the Federal Statistical Office in Wiesbaden pointed out that production was still affected by shortages of intermediate products due to disrupted supply chains because of the Ukraine war and the ongoing dislocation caused by the Corona crisis.

In France, the industry was also able to increase its output again in June. Month-on-month, output rose by +1.4%. Analysts had expected a decline of -0.3%.

In Spain, industrial production rose by +1.1% in June, which was also significantly better than experts' expectations (consensus -0.1%).


Economic Indicators August 8

MEZ Country Indicator Last period
07:45 SZ Unemployment Rate 2.2%
10:30 EZ Sentix Economic Perspectives Indicator (August) -26.4


Earnings Calender August 8

Country Company Period
GE Porsche Automobil Holding  Q2
GE Siemens Energy Q3
GE BioNTech Q2
NL PostNL H1
US News Corp Q4


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