The US dollar records gains against gold and against the major currencies after the release of the US labor market report for the month of April, which showed the addition of 253 thousand jobs outside the agricultural sector, while expectations indicated the addition of 179 thousand jobs after adding 236 thousand jobs in March, they were revised today to become 165 thousand Just.
At the same time, the report showed that the unemployment rate decreased again to 3.4%, as it was in January, its lowest level since 1969, while it was expected to remain at 3.5%, as it was in March, when the number of unemployed fell by 182 thousand to 5.657 million, while Operating levels increased by 139k to 161.031m.
The disguised unemployment rate, which counts part-time workers willing to work for a full day, also decreased to 6.6%, while it was expected to remain at 6.7% as it was in March.
As for inflationary pressures on wages in the United States during the months of April and July, the labor market report today showed an increase in the average monthly wage per hour by 0.5%, while it was expected to rise by 0.3%, as happened in March, with an annual increase of 4.4% annually, while it was expected An increase of 4.2% after a rise of 4.3% in March.
What also shows a growth in wage inflationary pressures, after the statement of the labor unit cost in the United States for the first quarter came yesterday, with an initial increase of 6.3%, while it was expected to rise by 5.5%, after a rise of 3.3% in the fourth quarter of last year, while it declined. The productivity of the unit working outside the agricultural sector in the United States in the first quarter of this year increased by 2.7% initially, while it was expected to decrease by 1.8%, after an increase in the fourth quarter of last year by 1.6%.
As previously, the same thing showed at the beginning of the week the ISM Purchasing Managers’ Index within the US industrial sector, which came up to 47.1 in April, while it was expected to decline to 46.6, with the employment component rising within the index to 50.2, while it was expected to rise to 47.9 from 46.9 in April. March, which shows an increase in the demand for labor within the sector.
The strength of the performance of the labor market at the present time was also previously expressed by the statement of change in the number of jobs within the private sector in the United States, which showed last Wednesday the addition of 296 thousand jobs in April, while expectations indicated that only 148 thousand jobs were added after adding 145 thousand in March revised to 142k.
So that the data shows to those who follow the performance of the American labor market that the Federal Reserve can keep the interest rate higher for a longer period than market dealers believed in order to contain inflation, supported by the strong performance of the labor market that exceeded all expectations, as stated by the Federal President after the Market Committee raised the rate Interest rate of 25 basis points as expected last Wednesday describing this improvement as unprecedented as the Fed tightened monetary policy to contain inflation.
The Federal Reserve Chairman made it clear, after the Market Committee raised the interest rate by 25 basis points, that the current interest rate level may seem sufficient to bring down inflation to the 2% annual rate that the Fed targets, which still seems a long way to go. He also did not confirm that the Fed will stop raising the next meeting in June. If God wants.
After the Fed’s assessment came after the committee’s meeting, without mentioning more interest rate hikes this time, and noting that the tightening monetary policy seems sufficient to bring down inflation levels to the 2% annual rate that the Fed targets over time.
However, Powell did not rule out, during his usual press conference after the meeting of the committee members, the possibility of returning to tighten monetary policy again in the event of a need for that, as he made clear that the Fed will, during the coming period, set the interest rate by looking at the data of the meeting after the meeting without preemption, while what the Fed has done is still An interest rate hike is on its way to achieving its impact on inflation.
The Federal Reserve Chairman seemed more optimistic than before that the US economy would not fall into recession during the period of the Fed’s adoption of its tightening policy to contain inflation, although it is still not unlikely that it will happen in a relatively slight way, after we saw a decline in the rate of growth of the national product in the first quarter from what was expected to 1.1%. annually.
Speaking about the 2% rate that the Fed targets for an annual rise in inflation, Powell made it clear that the Fed is still committed to reaching this standard, although it had expected it to fall to 3% annually by the end of this year. It is worth noting that adopting higher levels of inflation as a target means that there is no need for the Fed to do so. More tightening in monetary policy until reaching 2%.
He also stated regarding the interest rate cut that it is still unlikely to happen during this year and is not supported by a relatively slow decline in inflation rates, as the Fed sees in the remainder of this year, as wage rates still support inflation remaining above the 2% rate that the Fed targets annually.
It was also said about wages that their levels are not the main driver of inflation, although it is still supported by the performance of the exceptional labor market, which is different from any period of tightening in monetary policy that this market went through, as the levels of demand within it are still high, which resulted in the relatively low unemployment rates that we are going through in The current time, despite what the Federal Reserve raised interest rates by 5% over the past 14 months.
He also reported that the conditions the banking sector is going through are improving from what it was at the beginning of last March when the uncertainty was high, especially after JB Morgan’s acquisition of First Republic.
The initial reaction to the issuance of the labor market report today was the rise of the dollar against all major currencies and against gold, which was ecstatic with the Fed’s expression that it had stopped raising at the current stage.
The secondary financial markets to rise collectively support the attractiveness of the dollar, so that the yield on the US Treasury note for a period of 10 years, which usually attracts market interest, is currently near 3.45%, after it was at 3.40% before its issuance, which helped gold fall to trade currently near the 2000 level. dollars an ounce psychological.
The euro also fell against the dollar and returned to trading below the level of 1.10 after the issuance of that report, which comes after the European Central Bank’s decision also to raise the interest rate on deposits in euros by 25 basis points, to become 3.25%, and also the interest rate on refinancing to become 3.75% yesterday, as the European Central Bank approved the end of work. with its asset purchase program (APP) by the end of the second quarter.
It was also stated by the President of the European Central Bank, Christine Lagarde, during the press conference that followed the meeting, the possibility of continuing to raise the interest rate to confront inflation, as stated by her that some members of the Central Bank preferred to raise the interest rate by 50 basis points and considered it appropriate, and not only 25, as happened.
While US stock indices tended to decline initially, immediately after the release of the statement that paves the way for maintaining the interest rate for a longer term than expected, and it is also unlikely that the Federal Reserve will cut the interest rate soon, but it was difficult to ignore the impact of this good performance of the labor market on the economy and demand in general within the states. Therefore, the US stock index futures rose again with the beginning of the American session.
The Dow Jones Industrial Future Index is currently located near the psychological 33570 after the issuance of that report, which also raised the Standard & Poor’s 500 future index above the psychological 4100 level at 4107 currently, as well as the Nasdaq 100 futures rise, to be located at 13093 at the time of writing this report after the beginning of the session. American.
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Currency and metals markets expert/ Walid Salah El-Din Mohamed
Email / chief.economist@hotmail.com
May 5, 2023 – The strong performance of the labor market paves the way for the Fed to keep the interest rate high for a longer period
