(Bloomberg) -- Skittish stock markets got a reprieve Friday after the latest hiring data showed wage pressures easing as more Americans entered the workforce instead
Futures on the S&P 500 rose and Treasury yields fell after data showed the job participation rate jumped last month, which helped bring labor costs down -- a key step in helping the Federal Reserve’s efforts to reduce inflation. The fact that new jobs came in higher than expected also suggested to many investors that the Fed’s aggressive rate hikes aren’t yet doing serious economic damage.
“The hard punches of the Fed are not dropping the economy to the canvas. With the Fed’s signaling that aggressive hikes are still coming, the fact that the economy is adding a really healthy number of jobs and that the jobs market is chugging along strongly is a very good indicator that the Fed’s aggressiveness is not too much for the economy to handle,” said Michael Zigmont, head of research and trading at Harvest Volatility Management.
“It’s a confirmation that everything is working the way it should,” he added
Here is how other Wall Street strategists and investors interpreted the news:
Jay Hatfield, chief executive officer at Infrastructure Capital Advisors:
“The report was bullish for risk as the report was not too hot, average hourly earnings were lower than expected at 0.3% and labor participation rose. The Fed is the key driver of the market, and this report validates that inflation is cooling off, even though the backward-looking Fed is unlikely to acknowledge it in the near future.”
Lauren Goodwin, economist and portfolio strategist at New York Life Investments:
“This is a solid jobs report, and will strengthen the Fed’s argument for a more aggressive monetary policy approach. Chair Powell has made it abundantly clear that the FOMC is more concerned about the risk of entrenched inflation in the long term than about a recession in the near term. From this report, strong earnings growth and a dominant contribution of service workers to the headline payrolls increase are likely to contribute to concern that services and wage inflation are getting stickier.”
Jeffrey Rosenberg, BlackRock (NYSE:BLK) senior portfolio manager, on Bloomberg TV:
“It may no longer be the case that bad economic news and slowdown is really going to push the Fed off its tightening cycle, because they’ve been so clear to tell us it’s really about inflation,” he said. “The labor force participation rate number is really the key takeaway.”
“A little bit better-than-expected news there, a little bit weaker than expected on the wage front, modestly that’s good news from the bond market perspective of not really having the Fed having to react to inflation as strong.”
Priya Misra, global head of rates strategy at TD (TSX:TD) Securities:
“Perversely, this weaker report can help risk assets since it lowers some pressure on the Fed.,” she said. “We continue to like long-end real rates as we think that the Fed will not be able to respond quickly to economic weakness.”
Zachary Hill, head of portfolio management at Horizon Investment:
“The market is in the process of making the shift from ‘bad news is good news’ to ‘good news is good news,’ and today’s early rally in futures, following on the late rally during yesterday’s cash session, is another sign of that change in behavior following Chair Powell’s forceful dismissal of the notion of a pivot in policy.”
Florian Ielpo, head of macro research at Lombard Odier Asset Management:
“Consistently with the Jackson Hole’s closing remarks, the economy is still doing reasonably well, at least well enough to still be producing inflation. Today’s payroll numbers and the ISM figures are both pointing in this direction and give more ground to the Fed for 75 bps hike,” he said. “Markets are very likely to focus more on the unemployment bit than on the job creation evolution now that the support from central bank is vanishing.”
Eric Theoret, global macro strategist at Manulife (TSX:MFC) Investment Management:
“The data should confirm the need for a 50 basis point hike instead of a 75 basis point hike at the next meeting in September and offer a marginal easing in financial conditions,” he said. But, “overall, the data are unlikely to deliver a meaningful reversal in the broader market’s bearish trend as financial conditions are likely to continue tightening into year end.”
(Updates with more quotes throughout, chart)
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