I said earlier today that when markets have priced in more recession than inflation a strong NFP number could create volatility as market participants need to reposition. This is exactly what happened. The July employment numbers for the US just came in surprisingly strong and the markets dived as the dollar started rallying.
The labour market turned out to be much stronger than analysts had expected. The US economy added 258 thousand new jobs. June number was revised from 390K to +384K and the average hourly earnings increased 0.5% (month over month) vs 0.3% predicted by the analysts. Such strong growth in employment and earnings reminds us how strong the US economy still is. It also turns the eyes on the Fed and the dollar. USDJPY rallies very strongly while the good news was bad news for stocks (once again). The USD-priced risky assets are losing ground at the time of writing this. All US equity indices trade sharply lower. Dax, gold, commodity currencies EUR and Sterling are also dropping fast.
Today’s report was in line with the strong numbers that have been coming in despite the more conservative analyst estimates. The trend continued and the markets had priced the assets badly wrong. Now it’s clear to everyone that there’s no reason for the Fed to step back and ease off their inflation fight. I will continue to monitor the markets daily and keep you updated.
Chief Market Analyst
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