Author: Wu Bin
Editor丨Li Yingliang
The strong non-agricultural data has instead become a "nightmare" for the market.
On the 3rd, Eastern Time, the U.S. Bureau of Labor Statistics released the May non-farm payroll report. After a seasonal adjustment in May, non-farm payrolls increased by 390,000. Although it was the smallest increase since April 2021, it was much higher than the expected 325,000.
The strong non-agricultural data also provided more room for the Fed to aggressively raise interest rates.The logic of "the better the economy, the worse the stock market" came true again. The Nasdaq fell 2.5% on the 3rd, and the S&P 500 and the Dow also fell by more than 1%. .
Kristina Hooper, chief global market strategist at Invesco, told 21st Century Business Herald that rising interest rates have deactivated many asset prices, and the stock market is in a revaluation mode.All asset classes are going through some degree of revaluation and digestion given the start of the tightening cycle by the Federal Reserve and other major developed country central banks.
U.S. job market remains tight
Overall, the May nonfarm payrolls data showed that U.S. job growth remained healthy and the labor market remained tight.Total U.S. employment is now only about 800,000 less than its pre-pandemic historical peak, and if trends don’t change significantly, the difference could be smoothed out over the next two or three months.
In addition, the unemployment rate remained at 3.6% in May, slightly higher than the expected 3.5%, but still close to the low point before the epidemic, and the employment participation rate rose to 62.3% as expected.In terms of salary, which has attracted much attention, the average hourly salary increased by 0.3% month-on-month, which was unchanged from the previous month, and the year-on-year growth rate slowed from 5.5% to 5.2%, which was basically in line with market expectations.
Hooper told reporters that while the labor market continues to be tight and nominal wages are rising, real wages have been falling sharply because inflation is also rising.On the positive side, lower real incomes should cool demand, which should help keep inflation in check.
Tom Essaye, founder of market research firm Sevens Report, said such a strong non-farm payrolls data could completely dash hopes that the Fed will consider a pause in interest rate hikes this month and beyond, suggesting the labor market is still very tight.
According to data released by the U.S. Bureau of Labor Statistics, employment opportunities in industries such as leisure and hospitality, professional and business services, transportation and warehousing increased significantly, while retail employment declined.Specifically, the leisure and hospitality industry led non-farm payroll growth in May with an increase of 84,000, followed by professional and business services with an increase of 75,000, and the third-ranked transportation and warehousing industry with an increase of 47,000.
It’s important to note that while the overall U.S. job market is strong, the tech industry has taken a beating.After a massive expansion in the previous two years, multiple pressures such as rising inflation, slowing demand, and the Federal Reserve raising interest rates this year are forcing the U.S. technology industry to lay off workers and cut expenses on a massive scale.
Take Tesla’s job cuts as an example. Tesla CEO Elon Musk warned that Tesla needs to cut about 10% of its workforce and that he has a “super bad feeling” about the economy.As of the end of 2021, Tesla’s global workforce is 99,290, which means that if 10% of the workforce is cut, it may affect Tesla’s nearly 10,000 employees.
The good news, though, is thatlarge-scale layoffs have largely been concentrated in the tech sector,with employment in the service sector, which makes up the bulk, steadily rising as the impact of the pandemic subsides.
According to data released by global employment consulting firm Challenger, Gray & Christmas on the 2nd, due to strong labor market demand, the overall number of layoffs in the United States fell 14.7% in May compared with April.But the tech sector shed 4,044 jobs in May, well above the 459 layoffs in January-April combined and the highest level since December 2020.
The Fed's suspension of interest rate hikes may become "a dream of Nanke"
In May, the Fed hiked its benchmark rate by a massive 50 basis points and signaled a similar rate hike this month and next.Minutes of the Fed's May meeting showed that officials were more open about what action to take in September, depending on economic data, and the market had expected the Fed to slow interest rate hikes in September.
Poor macroeconomic data can provide an opportunity for the Fed to slow down the pace of tightening, but the strong economic data has poured cold water, and the market's expectation that the Fed will suspend interest rate hikes in September has become unlikely.
The current market pricing is still inclined to raise interest rates by another 50 basis points in September.The Chicago Mercantile Exchange's (CME) Fed Watch Tool shows that the probability of the Fed raising rates by at least 50 basis points at its September meeting has exceeded 70%.There is even an 8.4% chance of a 75 basis point hike in the next three meetings.
Fed Vice Chairman Brainard said it was hard to see a reason to pause rate hikes as policymakers weighed on the worst inflation in decades.“Based on the latest data we have, the market’s forecast for a 50 basis point rate hike this month and next seems reasonable. It’s hard to find a reason to pause rate hikes now, and to bring inflation down to our 2% target, we also There is a lot of work to be done.”
In this regard, Hooper analyzed to reporters, can the Fed control inflation at the final target of 2%?This is not expected to happen anytime soon, especially given that there are key supply issues that monetary policy cannot solve.The situation in Ukraine has brought a supply shock to countries, and commodity prices are likely to remain high, which will exacerbate inflation problems.
Strong non-farm payrolls mean that the Fed is likely to continue to raise interest rates vigorously. Sam Bullard, senior economist at Wells Fargo Bank, believes that the non-farm payrolls report continues to show signs of a tight labor market, coupled with the current high inflation environment, which further Convince the Fed that it needs to continue on the path of substantial monetary tightening.
Although the recent U.S. economic data is still strong, given that the Fed’s quantitative tightening era officially kicked off this month, and that there will be multiple 50 basis points of interest rate hikes in the future, the real headwinds for the U.S. economy have yet to come.For example, JPMorgan Chase CEO Jamie Dimon warned that the U.S. economy faces unprecedented challenges and that JPMorgan Chase is preparing for the coming "economic storm."The Fed has no choice, the U.S. economic system is flooded with liquidity, and they have to remove some of it to stop speculation.
Coincidentally, Goldman Sachs President John Waldron also warned that the global economy will face an unprecedented shock, and believes that this is the most challenging shock of his career."The kind of shock to the whole system is unprecedented for me."
And for U.S. stocks, the prospect of a hawkish Fed and a visible economic slowdown means this year's slump is unlikely to end anytime soon.Liz Ann Sonders, chief investment strategist at Charles Schwab, warned that the market's sharp rally in late May could set the stage for more selling this month, "The strong rally we saw last week looks more like a typical bear market rally. ."
