(Reuters) - U.S. job growth rebounded strongly in June, but moderate wage gains and mounting evidence that the economy was slowing sharply could still encourage the Federal Reserve to cut interest rates this month.
STOCKS: The benchmark S&P 500 Index .SPX was down 0.56% at the open in the wake of the June non-farm payrolls data.
BONDS: Treasury yields ticked higher after the stronger-than-forecast report. The benchmark 10-year yield US10YT=RR traded around 2.04%.
FOREX: The U.S. dollar gained against a basket of currencies to its highest levels in 2-1/2 weeks.
“The jobs report showed the economy slowing but not faltering. That’s important because one of the questions going into the jobs report was what it meant for the possibility of the Fed cutting rates at the end of the month. They still may do a quarter-point cut as an insurance move, but this certainly says the data aren’t weakening quickly.
“If there was a concern in the jobs report, it was the uptick in the unemployment rate, but we’d need to see several months of that, rather than one month. We saw the participation rate rise, which is a big piece of why the unemployment rate rose.”
LUKE BARTHOLOMEW, INVESTMENT STRATEGIST, ABERDEEN STANDARD INVESTMENTS, LONDON
“These are good numbers, but a rate cut in July is still all but inevitable. Employment growth remains a bright spot amid a fairly mixed bag of U.S. data and yet markets have come to expect a cut now, so will fall out of bed if they don’t get one. It does give the Fed some breathing space in the sense that there’s no immediate need now to signal a significant cutting cycle. The combination of this more positive data, the Fed easing and the truce in the trade war should help debt and equity markets rally into the summer.”
KARIM BASTA, CHIEF ECONOMIST AT III CAPITAL MANAGEMENT IN NEW CANAAN, CONNECTICUT
“The data has been mixed, I would say, overall. Both sides can point to evidence of weakness or evidence of strength or resilience. But obviously payrolls is more important than any other number and this one alleviates a lot of the fears.
“The Fed’s reaction function is still not really clear… They are in a bit of a bind. I think on the surface the data, in my opinion, doesn’t really support an imminent cut, but markets are expecting it and I do think there’s a risk at this stage that they disappoint.”
CANDICE BANGSUND, ASSET ALLOCATION MANAGER, FIERA CAPITAL, MONTREAL
“The results were really encouraging and reinforced the underlying strength of the U.S. market and the U.S. economy in general and is likely to help to temper the markets aggressive calls for easier policy from the Federal Reserve.
“Obviously this was a key report for the Fed as well in determining their path in the near term, and with markets fully pricing in a July rate cut and several thereafter, the stronger-than expected report is likely to throw cold water on those fairly dovish expectations.
“The health of the U.S. economy is becoming a theme not only in the U.S. but globally. The headwinds associated with the trade debacle and the factory sector are largely contained to the manufacturing and the domestic economy has been fairly immune.
“Today’s report reinforces the domestic economy is strong and the Fed has a little bit of leeway and flexibility to wait and to hold off on cutting rates in July. The macroeconomic environment, the financial markets are not justifying a rate cut as early as July, if not for the remainder of the year.”
“When you are looking at the last two ADP reports, it’s definitely something that sticks out as being a good number and I think the wage gain was good. I mean 3.1% is solid but not too inflationary.
“Unless the Fed is seeing some other major slowdowns, this might give them reason to take a pause at the end of the month. And also we’ve got to see how the rest of this month shakes out with the trade talks.
“Now that both sides are talking again, and if they can get a deal together and you still have solid employment numbers, there could be less of a need to move in July.”
MARK GRANT, MANAGING DIRECTOR AND CHIEF GLOBAL STRATEGIST, B. RILEY FBR, INC, FT LAUDERDALE, FLORIDA
“The jobs report number is quite positive. The consensus view had been plus-160 million jobs and the number came in at plus 224 million. Not only that but wages were up 3.10%, which is indicative of a growing economy. U.S. employers have added jobs for 105 straight months, by far the longest streak of job creation on record. The notion, expressed by some, for some type of forthcoming recession seems invalid, based upon the numbers. Some also have expressed the view that this will stall any rate decrease by the Fed. I do not accept this argument either.
“The Fed is not being pushed so much by America’s economics or by any political pressure but by the actions of the other central banks in the world. The universe of negative-yielding bonds has grown about $1.2 trillion recently pushing the total past $13 trillion for the first time ever in history. Some 40% of global bonds are now yielding less than 1.00%, according to the data. It’s not just all sovereign debt either. In the investment-grade market, negative-yielding debt now comprises almost 25% of the total amount outstanding.”
“This is a strong report. From our perspective, this suggests the Fed if they want to hold off for a while they can. It suggests that what has been seen in the manufacturing sector doesn’t appear to indicate we may be heading into a recession.
“People have been concerned about the manufacturer’s index has been slowing down to just above the rate of expansion. So adding 17,000 jobs indicates the warning signs people saw in manufacturing might not be so strong.”
JJ KINAHAN, CHIEF MARKET STRATEGIST AT TD AMERITRADE, CHICAGO
“You have to remember a lot of the primary traders at trade desks aren’t there today, so a little bit of volatility I was kind of expecting. It is a tough number to make something out of because it was such a hot number and that is the biggest surprise to the market. But at the same time, many of us thought if we came in with a hot number we would get a revision higher from last month and we got a revision lower. Not a lot lower, but lower nonetheless.
“So, everyone is kind of scratching their heads asking if this is hotter because of some timing in how they collect the jobs data from last month, so if you smooth it out, does that make a little bit more sense. Wage growth, nothing spectacular, a little bit of wage growth. But when you see the areas, you look at where we are creating jobs - it is impressive. Obviously business to business and healthcare continue to be the stalwarts but to add transportation, warehousing, and construction jobs, that gets people pretty excited. As it should.
“The Fed is still on course (for a cut).
It makes the financials kind of interesting today because bonds continue to fall. For stocks, we are going to see kind of an odd trading day as people try to figure out what to do with is.”
SCOTT BROWN, CHIEF ECONOMIST AT RAYMOND JAMES IN ST. PETERSBURG, FLORIDA
“It’s still more likely than not that the Fed will cut rates but the odds have decreased somewhat. The 50 basis point cut should be priced out completely at this point.”
Americas Economics and Markets Desk; +1-646 223-6300