Fed doves cheered by soft US jobs data, but inflation concerns linger

By Newsdesk

May 06 2024
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Friday's US jobs data brightened the mood among Federal Reserve (Fed) doves, as the nonfarm payrolls (NFP), unemployment rate, and wages all pointed to a slowing labour market in April, according to Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank.

The US economy added 175,000 new nonfarm jobs last month, wages grew less than 4%, and the unemployment rate rose to 3.9%, versus expectations of a steady 3.8%.

"The Fed won't be in a position to cut its interest rates right away, but is given a higher chance to do so a bit earlier than what was expected at the start of last week," Ozkardeskaya said.
"Odds for a September rate cut rose to more than 67% - even though, September would be a politically uncomfortable time for the Fed to start cutting rates given that the presidential election is just around the corner and no one at the Fed wants to be pointed at for manipulating the results."

The US 2-year yield briefly dipped to 4.70% after the soft jobs data, and the US dollar index tested the 50-day moving average to the downside. However, Ozkardeskaya noted that the inflation leg of the story is far from being resolved, and gains could remain limited.

In currency markets, the EURUSD tested the 1.08 resistance, near the 50 and 200-day moving averages and the year-to-date downtrending channel top, while the USDJPY briefly slipped below the 152 level.

The AUDUSD is better bid ahead of tomorrow's Reserve Bank of Australia (RBA) rate decision, with the bank expected to maintain its rate unchanged at 4.35% but possibly revise its inflation outlook upwards and deliver a hawkish message.

In equities, last week's dovish Fed pricing and better-than-expected earnings from Apple and Amazon helped the S&P 500 eke out a 0.6% gain, closing right on its 50-day moving average. Six of the "Magnificent 7" stocks have reported earnings so far, with results beating lofty market expectations.

"Beyond the Magnificent 7, 77% of the S&P 500 companies have reported a positive EPS surprise so far, according to FactSet. The blended year-over-year earnings growth rate for the S&P 500 printed a strong 5.0% - versus 3-4% expected by analysts," Ozkardeskaya said.

Fed doves cheered by soft US jobs data, but inflation concerns linger