Jobs spike makes it tough to cut interest rates

A man looks at an electronic board showing the Nikkei stock index outside a brokerage in Tokyo

The jobs data came as investors are pricing high on possible immediate interest rate cut moves by the USA central bank in order to spur growth.

While there still seems to be some flexibility in the job market size, there's also the issue of quality.

The S&P index recorded 14 new 52-week highs and no new lows, while the Nasdaq recorded 32 new highs and 33 new lows.

Total nonfarm payroll employment in June rose by 224,000 jobs, far exceeding market expectations (162,000).

The US Department of Labor will release non-farm payroll data, a measurement of job growth seen as an indicator of economic strength, for the month of June.

Retailers continued to cut jobs with a 5,800 loss, as they shoulder ongoing pressures from increasing wages in a tightening labor market.

The Dow Jones Industrial Average lost 124 points, or 0.5%, to 26,841. The CME's FedWatch tool showed Friday that expectations for the Fed to lower its benchmark rate by 50 basis points fell to 9% from 29%. The Russell 2000 index of smaller company stocks was off 0.2%. "As well as we are doing from the day after the great Election, when the Market shot right up, it could have been even better - massive additional wealth would have been created, & used very well".

Traders are still pricing in a 100% probability of a rate cut in July, but by less than previously expected.

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Hourly wages rose 3.1% from a year ago.

The jump in yields helped boost financial stocks, which led the gainers.

A prosperous economy stimulated by pro-worker policies is pulling workers off the sidelines. Chipmaker Nvidia dropped 1.7%.

Health care increased by 35,000 over the month and by 403,000 over the past 12 months. In addition, growth from the past two months was revised up by a combined 2,600 jobs, showing that the industry still has some positive momentum heading into the second half of the year.

Still, he thinks that a Fed cut is on the table as the jobs report alone isn't enough to keep the Fed from easing. Both those sectors reported a decline in hiring in May, setting the stage for a possible bounce-back.

Meanwhile, the Fed is sending fairly optimistic economic signals after opening up the possibility of cuts last month, when they cited muted inflation pressures and an economic outlook clouded by a US trade war and slower global growth. But to argue that the economy needs the monetary easing soon, that's a very different argument that is much harder to support.

Those are not the prototypical conditions for a rate cut. "Employment growth remains a bright spot amid a fairly mixed bag of US data and yet markets have come to expect a cut now so (they) will fall out of bed if they don't get one".

"Should the NFPs indicate a robust jobs market then the likelihood of an immediate rate cut could diminish and stop the rally in its tracks", said Konstantinos Anthis, head of research at ADSS.

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