Good news on jobs scares US stockmarkets

US consumer spending has remained robust
June brought the best monthly US jobs growth of the year, notes Chris Matthews on MarketWatch, but stockmarkets were not best pleased. Shares fell back on the strong data at the end of last week amid worry that good jobs growth means interest-rate cuts by the Federal Reserve are less likely.
US non-farm payrolls rose 224,000 in June. In May only 72,000 jobs were created. The jobs news means that there is now “no chance of a 50 basis-point rate cut” later this month, writes John Authers on Bloomberg. Yet many traders are expecting rates to fall by 0.25% when the Fed next meets. The “guts” of the employment data were less encouraging than the headline figure implies. Unemployment actually ticked up slightly to 3.7%. Manufacturing is also in bad shape. The June IHS Markit manufacturing index fell to 50.1, its worst reading since 2009.

Don’t be distracted by the noise of monthly payroll figures, says Anatole Kaletsky for Gavekal Research. There is no consistent evidence to suggest that a US recession or serious weakening is on the cards. Consumer spending growth, which accounts for 70% of GDP, continues to chug along. Some will point to an inverted yield curve – the yield on the ten-year Treasury bond remains below that of the three-month note – but in an era of near-zero interest rates the bond market has lost its old power to signal impending doom.
Note that today’s “ultra-expansionary monetary policy” ultimately caused an outbreak of inflation when it was tried in the 1960s but markets appear “completely indifferent” to this risk today. If an inflationary surprise is around the corner then a Fed rate cut can only hasten the reckoning. Still, as Luke Bartholomew of Aberdeen Standard Investments told CNBC, “markets have come to expect a cut [and] will fall out of bed if they don’t get one.”

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