A weaker-than-expected US jobs report cut the odds of a Federal Reserve rate hike this month, sending the Dow Jones Industrial Average to a record high and lifting European indices to fresh peaks. Front-end yields fell sharply, though one strategist suspects the market may be reading the data as too dovish.
A softer US jobs report eased fears that the Federal Reserve is about to raise interest rates, and equities responded by pushing the Dow Jones Industrial Average to a record high on Thursday. European markets also hit new peaks, with the Dax and Stoxx 600 at all-time highs, while the FTSE 100 jumped to a four-month high at the open before slipping slightly into the red.
Rate-hike odds cut in half
Non-farm payrolls for June rose by 57,000, well below the roughly 110,000-115,000 expected and under a downwardly revised May figure of 129,000. The unemployment rate fell to 4.2%, its lowest in a year, though that was largely down to a 0.3 percentage point drop in the participation rate, which sits at a 50-year low outside the Covid era.
Front-end yields declined sharply on the print, and the odds of a Fed hike this month were cut in half from around 30% to 17%. A rate increase in September now stands at 50/50. Neil Wilson, investor strategist at Saxo UK, said his hunch is that the market is too quick to read the report as dovish, pointing to an underappreciated regime shift at the Fed.
Commodities and semiconductors
Away from equities, Brent crude hit $70 the previous day, down 40% since its peak, before recovering towards $72. Gold, meanwhile, has turned a corner and is set to post its first weekly advance in five.
Semiconductors fell for a second day on Thursday, pushing the Nasdaq down 0.8%. Even so, news of Anthropic tapping Samsung Electronics for a custom AI chip lifted sentiment in Asia, where the Kospi rallied almost 6%. Wilson argues the data does not change the fact that the Fed remains short on the inflation side of its mandate and now needs to be more mindful of employment, leaving a July move still possible.
Source: Investors' Chronicle
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