Open Account Trading Carries Risk

Once again, the indications given by the ADP report were far from being accurate. The latest growth numbers for the US job market just came in stronger than expected with 390 thousand new jobs created in May. The NFP number was slightly weaker than in April but doesn’t really point to significant cooling in the job market 

While the growth rate came in as a positive surprise the fact that the average hourly earnings on yearly basis didn’t change that much (5.2% vs 5.2% estimate, previous 5.5%) indicates the inflation doesn’t have a strong earnings component to it, at least not yet. One data point doesn’t create a trend but this could point to inflation slowing down. The participation rate was confirmed at 62.3% (vs 62.2% last month) while the unemployment rate remained unchanged at 3.6% (3.5% estimate, 3.6% previous).

All in all, the case for the Fed to raise rates is not threatened by this report. No strong indications of the economy losing momentum substantially but still some signs of both the job market and inflation cooling off a little. At the time of writing this Fed Funds futures traders price in a 100% probability for the Fed to hike the interest rate by 25 basis points in the June meeting and the same probability for another 0.25% rate hike in July.

The initial reaction was the dollar bullish (+0.20%) with stocks drifting lower (DJ -0.35%) and gold (-0.30%) and T-Bonds slipping too. The moves have been muted and therefore the longer-term trends in the key markets stayed intact.

Trade Safe!

Janne Muta
Chief Market Analyst

TIOmarkets

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