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Strong US jobs figures put markets under pressure

Markets finished last week on a sour note, dragged down by fears that the Federal Reserve (Fed) may again have a good reason to push back its first interest rate cut. Data released Friday showed that the number of jobs created in the US economy last month was much larger than economists had expected. At the weekend, market uncertainty in Europe increased as far-right parties gained seats in the European Parliament.

Shane Strowmatt, LGT
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5 minutes
Jobs sign
© Schutterstock

US nonfarm payrolls shot up by 272,000 in May, a huge jump from April’s revised 165,000 jobs and nearly 100,000 jobs higher than market expectations. The unemployment rate nevertheless ticked up to 4% from 3.9%. Wage growth remained strong, going up 4.1% on the year in May after a revised increase of 3.9% in April. The blowout job creation figure came after last week’s JOLTS and ADP reports showed cracks in the labour market.

"Higher for longer" fears rekindled

Treasuries were under pressure immediately after the release of the employment report as the traders pushed back their expectations for when the Fed will begin cutting interest rates. Yields on two-year government debt shot up to near 4.9% and ten-year yields were above 4.5%. Gold, which typically performs poorly when rates on interest-bearing products are high, dropped to around USD 2300 per ounce. The poor sentiment put the breaks on an otherwise solid week for equity markets that saw multiple all-time highs reached for major indices. The Nasdaq-100 reached another intraday all-time high on Friday at 19,113.88 points before finishing the day down 0.1% at 18,997.35 points. The Dow Jones Industrial lost 0.2% and the S&P 500 closed 0.1% lower on Friday.

Europe’s far-right shift adds market uncertainty

Far-right political parties saw gains in European Parliament elections over the weekend. While the centrist and leftist parties will retain a majority in the European Union legislative body, the election result could make passing some legislation more difficult. Following the results, French President Emmanuel Macron called for snap elections in his country. Pending elections in France and UK as well as the unknown effects of the far-right gains in the European Parliament increase uncertainty for markets in the coming weeks and months. The euro slipped to its lowest level in a month versus the dollar on Monday, trading near USD 1.0754.

Japan contracts less on revision in first quarter

The Japanese economy contracted 1.8% on the year in the first quarter of 2024. That’s less than the 2% initially estimated. The positive revision was mostly due to private-sector investments, which were less negative than previously thought. The Nikkei 225 was trading 1% higher on Monday. South Korea’s Kospi was down 0.3%. Markets in Australia, Hong Kong and mainland China were closed for public holidays on Monday.

Central banks remain in focus

This week, investors’ attention will remain fixed on central banks’ decisions and comments with the Fed making its monetary policy decision public on Wednesday and the Bank of Japan’s latest announcement due on Friday. Tuesday, the UK releases unemployment figures and on Wednesday inflation data comes out of some of the world’s largest economies, including the US, China and Germany. The University of Michigan Consumer Sentiment Index wraps up the week on Friday.

Corporate and macroeconomic calendars

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: Sentix investor confidence for the eurozone.

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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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