Cooling US jobs data and shifting analyst sentiment on Federal Reserve policy have given markets some breathing room, with investors seeing reduced pressure for a near-term rate hike and a more supportive backdrop for equities, according to market strategists and investment chiefs who said the softer labour print may ease inflation fears and extend the stock rally.
A tepid June employment report showed US job growth slowing more than expected with prior months revised lower, prompting traders to scale back expectations of an imminent Federal Reserve rate hike as early as September. Adam Sarhan, chief executive of 50 Park Investments, said the report allows markets to “breathe a sigh of relief” but added that it does not eliminate inflation concerns, only reduces short-term pressure on the central bank.
Saqib Iqbal Ahmed and Laura Matthews reported that the data reassured investors that the labour market is not re-accelerating in a way that could force the Federal Reserve into a more aggressive stance. Markets briefly edged higher before paring gains, while the US dollar slipped as rate hike expectations were dialled back.
Fed fund futures now imply roughly even odds of a rate increase by the September meeting, according to LSEG data, reflecting a shift in positioning after weeks of stronger economic signals had fuelled concerns about tighter policy and pressure on high-growth technology stocks.
Mark Hackett, chief market strategist at Nationwide, said further easing in rate cut expectations could reinforce a more risk-on environment for equities, while Anshul Sharma, chief investment officer at Savvy Wealth, noted that a sustained trend of moderating labour conditions and softer inflation would strengthen the case for a more accommodative Federal Reserve and support equity valuations, particularly in technology.
Reuters
