NonFarm Payrolls - almost a million. U.S. stock indices set new records.
All last week the participants of stock and currency markets waited impatiently for the data on the US labor market. Briefly let us remind that exactly the labor market is in the priority of the Federal Reserve System now. In other words, it is the speed of the labor market recovery that will determine when the Fed will start to roll back its quantitative stimulus program and raise its key rate.
And it will also indirectly determine the rate of inflation, which continues to rise and may continue to do so as long as the Fed continues to inject hundreds of billions of dollars into its economy. So the sooner the labor market recovers, the sooner the Fed will start to tighten monetary policy. There was already a fairly important report released on Wednesday, the ADP. However it was three times worse than forecasted so it disappointed the markets quite a lot. However, we warned that the ADP and NonFarm Payrolls reports are essentially unrelated to one another.
NonFarm Payrolls - almost a million. U.S. stock indices set new records.
Simply put, a failure in the former does not guarantee a weakness in the latter. And so it turned out in practice. The nonfarm payrolls were 943,000 in July, compared to an estimate of 870,000 and a previous reading of 938,000. This is a very high number, and the second month in a row. We didn't expect such a high estimate to be beaten by the actual value, but as it happened, both the US currency and US stock indices received a rush of optimism from market participants and showed growth on Friday.
In addition, the unemployment rate also fell, from 5.8% to 5.4%, and average wages rose more than forecasted. Thus the entire package of macro statistics from overseas was very strong on Friday. On the back of these statistics, the S&P 500 and Dow Jones stock indices closed higher again, making new all-time highs.
The former closed Friday at 4435 and the latter at 35190. The NASDAQ Composite was down slightly on Friday, closing at 15102. But it also remains near its all-time highs. So we can conclude that the U.S. stock market is still rising and it is doing so even without strong statistics from across the ocean.
We already said that since the Fed keeps pumping money into the economy, that money has to settle somewhere eventually. So far, most of it is settling in the stock market. So, since the Fed is not going to end the quantitative stimulus program before 2022, U.S. stock indices might continue to rise for another 5 months.
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