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US job report supports the ongoing monetary tightening

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
US employment data released on Friday showed nonfarm payroll added another 390,000 jobs after a 436K job gain in the previous month

Although the forecast for this month was 325K - lower than the previous month - it still represented a solid gain when everyone was talking about a slowdown and even an economic recession. This figure shows that this pessimism is unfounded and that it is wrong to forecast a slowdown in the economy, considering the financial data that is being published.

Since January 2020, just before the pandemic hit, the number of jobs gained has nearly erased the number of jobs lost.

 

The unemployment rate remained stable at 3.6% (3.5% expected). The engagement rate increased, as well as average hourly earnings, to 0.3%, short of the 0.4% mark. Year-over-year unemployment rate came out as expected at 5.2% (vs. 5.5% last month).

 

The salary growth data should also be seen as positive, showing a minor decline in remuneration since one of the Fed’s main concerns is that an inflationary spiral will occur due to the rise in salaries.

 

Job creation in May was indeed the slowest growth rate since April 2021, with falls in the retail sector and increases in the services sector, indicating a change in the pattern of consumption. Large technology companies such as Twitter, Netflix, and Tesla, announced that they planned to reduce the workforce by 10%. This must be considered that it will occur when the unemployment rate is at full employment and in an adverse geopolitical environment and rate hikes. Therefore, it can be said that the labor market is only minimally affected. Some relaxation of the labor market would be desirable due to its positive effects on inflation.

However, the market reaction was that stocks moved lower, and Treasury yields rose, albeit only marginally.

 

Possibly, the cause of the fall in the stock markets is not the employment data, which has positive elements, but the relentless rise in raw materials, natural gas, and oil, which are directly related to inflation, which could lead to a setback in global growth.

 

Despite OPEC+'s decision to raise its production by 648k BPD, there is still a supply-demand imbalance that has pushed oil above the $120/barrel mark in Friday's session, technically putting it on track for the maximum of around 130$ per barrel.

 

There are no expectations that production can be increased, as many OPEC+ countries cannot do so. However, there are talks of allowing Venezuela and Iran to export, and Libya is announcing the reopening of some of its closed extraction facilities.

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Sources: Bloomberg, Reuters

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.