- Equities rallied after the economy added 139,000 jobs in May, beating estimates of 130,000.
- Market participants are pricing the next Fed rate cut in October.
- Economists expect US inflation to increase by 0.2%, the same as the previous month.
Equities edged higher on Monday due to optimism over ongoing talks between China and the US. Meanwhile, the focus was shifting from Friday’s upbeat US employment data. Market participants are now gearing up for consumer inflation data.
Equities weekly change (Source: Bloomberg)
On Friday, equities rallied after the US released a positive employment report, ending the week in gains. According to data, the economy added 139,000 jobs in May, beating estimates of 130,000. Moreover, average weekly earnings increased more than expected. Meanwhile, the unemployment rate stayed at 4.2% as expected.
The nonfarm payrolls report eased worries about a likely recession caused by Trump’s tariffs. Since April, experts have been closely monitoring economic reports for signs of a rapid slowdown. However, the economy has performed better than expected. This has come as a surprise and has calmed recession worries. However, it has also allowed the Fed more room to assess incoming data before cutting interest rates.
Currently, market participants are pricing the next rate cut in October. The timing has shifted from September and may continue to change.
Meanwhile, market participants were hoping for more progress in trade negotiations between the US and its partners. However, progress has been slow. Furthermore, trade tensions between the US and China increased last week. Trump accused China of violating a part of their tariff deals.
However, by Monday, optimism had risen after top officials from both countries began talks in London. These talks could yield more progress in the temporary deal to pause tariffs. Such an outcome would further ease trade tensions and improve risk sentiment. However, that remains to be seen.
Meanwhile, market participants are gearing up for Wednesday’s US Consumer Price Index report. Economists expect inflation to increase by 0.2%, the same as the previous month. Meanwhile, the annual figure might accelerate from 2.3% to 2.5%.
Analysts and the Fed have been keeping an eye on inflation to see whether Trump’s tariffs have increased price pressures. If that is the case, the Fed will maintain its current cautious stance. However, if inflation continues its downtrend, policymakers might gain confidence to lower borrowing costs later this year. Moreover, equities would rally.
