What has happened
This week is getting off to a relatively slower start – US financial markets will be closed on Monday, observing the 4th July Independence Day holiday that fell on Sunday. That said, the US is still likely to set the tone for global markets for the week ahead, after the US jobs numbers for June that was printed on Friday encouraged a positive move for risk assets. Global equities, led regionally by the US, finished Friday at a fresh record high. The highlight for the week ahead will be on Wednesday with the publication of the minutes from the US Federal Reserve (Fed)’s latest mid-June monetary policy meeting. Elsewhere, in commodities, the oil price might be volatile, as OPEC+ members last week proved unable to agree on future production plans around the continued easing of supply curbs introduced last year. OPEC+ discussions are due to resume later today.
Markets see ‘goldilocks’ in the latest US jobs report for June
Friday saw the release of the latest US non-farm payrolls jobs report for June, and as far as how the markets interpreted the data, it looked a lot like goldilocks: not too hot and not too cold, and arguably just right for the Fed’s outlook currently. On the one hand, the better-than-expected pace in job creation (with 850,000 jobs added in June versus a Bloomberg median estimate of 711,000) suggests constructive momentum for the US economy. It also suggests marginally less inflationary pressures at the edges as companies can fill vacancies, which probably pushes back on the narrative that workers might be holding out for higher pay. But, at the same time, with a small tick-up in the unemployment rate to 5.9% from 5.8% the previous month and an unchanged labour force participation rate of 61.6%, there is still a lot of labour slack to fill. For context, even with the jobs added in the US economy in June, there are still around 6.8m fewer Americans in work than there were back in February 2020.
UK sees new COVID cases grow as ‘terminus date’ of 19 July nears.
We are just two weeks away from the UK Prime Minister Johnson’s ‘terminus date’ of Monday 19 July, when most social restrictions in response to the pandemic are due to end. Yet the ‘Delta’ variant continues to drive a rise in new cases, and Sunday recorded 24,248 new cases, marking the 7th day in a row of cases over 20,000 a day. The 7-day average daily rate in UK new cases has now grown 6-fold between 1 June and 1 July. Despite the rise in cases, the new Health secretary (and former Chancellor), Sajid Javid, is pushing for the 19th July date to be kept, citing relatively lower rates of current hospital admissions and deaths.
What do We think
Markets remain highly sensitive to central banks’ monetary accommodation, and feeding into this, in turn, is the economic data. All in all, the latest US monthly jobs print suggests no incremental change in pressure on the Fed. In addition, the latest Fed meeting minutes due out on Wednesday are not expected to tip the current equilibrium in markets which is for inflation to prove ‘transitory’ and interest rates to stay low for some time yet. This narrative is likely to continue to prove a supportive backdrop for risk assets again this week, as it has done so recently.
