US labor market data released this afternoon beat market expectations, surprising with a positive reading. This may have implications for further monetary policy tightening in the United States.
As reported by the U.S. Labor Department, total employment rose by 528000 in July, and the unemployment rate fell to 3.5 percent. The market consensus was for employment growth to reach 250,000, while the unemployment rate settled at 3.6 percent. The published employment growth was recorded in a number of sectors, but the publication's result was mainly influenced by employment growth in leisure and hospitality, professional and business services and health care. As a result, according to BLS data, both total non-farm employment and the unemployment rate returned to pre-pandemic levels in February 2020. The July data also showed the largest increase in employment since March 2022.
Not only did the NFP come in better than market expectations, but also a number of other macroeconomic data released at 2:30 p.m. today. Average hourly earnings rose at an annual rate of 5.2 percent in July against a consensus of 4.9 percent, while average hourly earnings in June rose 0.5 percent against a consensus of 0.3 percent.
It appears that the better-than-market expectations data may influence the following decisions of the Federal Reserve, for which, along with inflation, the labor market is a priority, as a result of the Fed's dual mandate. According to Bloomberg, the interest rate market began to price in the possibility of another 75 basis point interest rate hike rather than a 50 basis point hike with greater probability after the labor market data. Greater potential monetary tightening in the U.S. than was thought before the data was released could influence a number of markets. The reaction after 2:30 p.m. seems to be evident in the quotations of the US dollar or stock market indices.
The rate of the EUR/USD pair between 2:30 and 3:30 p.m. dropped from 1.0235 to 1.0155, while the quotes of Nasdaq 100 seemed to fall from 13320 points to 13090 points. Gold fell from around $1,790 to $1,770 during this period.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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