NEW YORK (Reuters) – Stronger-than-expected U.S. jobs report boosts investor attention to economic data and the Federal Reserve’s upcoming move, as markets applaud new evidence of a Robust economic recovery amid lingering inflation concerns.
U.S. companies hired the most workers in 10 months in June, according to data on Friday, raising wages to attract millions of unemployed Americans to sit at home, a tentative sign that a labor shortage is weighing on the The economy was starting to weaken.
While the market’s initial reaction to the report was positive, with stocks hitting new highs and Treasury yields falling only slightly, investors said the data did not allay concerns that a strong recovery and rising prices. wages could force the Fed to start unwinding its easy money policies faster than expected.
These dynamics could weigh on financial markets over the summer, as investors await the Fed’s July monetary policy meeting and August symposium in Jackson Hole, Wyo., After a belligerent shift in the central bank last month caused several days of market turmoil. The minutes of the latest central bank monetary policy meeting, due for release next week, may also provide insight into policymakers’ thinking.
“I think the market is ripped apart,” said Priya Misra, head of global rates strategy at TD Securities. “If the data is better it should normally mean higher rates, but if the Fed is forced to exit faster it would slow the economy.”
Although US stocks are near the highs, some analysts have noted signs of caution in various corners of the market. Concerns over the spread of the COVID-19 Delta variant have weighed on economy-sensitive travel and leisure and value stocks, while concerns about a potentially more hawkish Fed are among the factors keeping US government bond yields at a moderate level.
In recent weeks, investors have also noted a concentration of market gains in fewer stocks, which some investors see as a sign of declining confidence in the broader market.
The non-farm payroll increased by 850,000 jobs last month after increasing by 583,000 in May, according to the Ministry of Labor. This left employment 6.8 million jobs below its peak in February 2020. Average hourly wages rose 0.3% last month, pushing the year-on-year wage increase to 3.6 % against 1.9% in May.
Inflation concerns were more apparent in the bond market, where 10-year Treasury yields were in a range after peaking at 1.776% on March 30. Yields fell to 1.431% on Friday, while the benchmark S&P 500 stock index gained nearly 0.61% to a new high.
“I’m assuming the Fed will eventually rise earlier and / or faster than two hikes in 2023 due to workforce concerns,” said Tom Graff, head of international fixed income at Brown Advisory. “This means the non-transitional phase is probably closer than the Fed admits.”
Friday’s report should prompt the Fed to focus more on reducing its support for the economy at its next meeting in August, said Rick Rieder, director of global fixed income investments at BlackRock.
“Today’s payroll report reinforces the fact that the economy is bursting with demand (especially for skilled workers) and is only held back by supply,” he noted.
Reporting by David Randall; Editing by Chizu Nomiyama