Daily Commentary BY THE CURVE TEAM –

Employment Data Hits Interest Rate Expectations

8th of July, 2019

The latest employment data in the US took the market by surprise and threw a spanner in the works as far as Fed monetary policy expectations go.

Just as the narrative around the slowdown in the global and US economy was gathering pace, the latest employment data suggests there is still life left yet in the US expansion. The latest nonfarm jobs report saw 224,000 new jobs created in June, well ahead of the 160,000 expected. It was a solid bounce from the 72,000 new jobs the previous month.

The latest jobs growth combined with an unemployment rate hovering below 3% and annual pace of wages growth holding above 3% suggests things aren’t too bad at all in the US economy. The next key number to drop will be the latest CPI figures this week.

In the wake of the solid jobs numbers on Friday night, the focus will shift back to the Fed this week.

The market will be closely watching the minutes from the Fed’s most recent meeting for clues on the outlook. Any strong reference of the words ‘patience’ and ‘data dependant’ and we could see expectations of Fed rate cuts pared further. Chairman Powell is also scheduled to speak which will have the market on notice.

After the flurry of RBA activity last week it is back to the data this week domestically. Today we get the June jobs ads report. Tomorrow will see the latest monthly business survey followed by the consumer sentiment survey on Wednesday. The domestic data will then be rounded out with the latest new lending data on Thursday.

David Flanagan

Director - Interest Rate Markets