Stocks and Indices

US Nonfarm Payrolls surprise after BoE dark inflation outlook!

Author: Ahura Chalki

Friday, 05 August 2022 Number of words: 388 Study time: 2 Minutes Views: 528

SP500 price analysis

According to the US Bureau of Labor Statistics, Nonfarm Payrolls in July rose by 528,000, more than double the predictions. At the same time, June numbers also revised up from 372,000 to 398,000. With these increases and development in the labor market, the unemployment rate also edged lower to 3.5%. 

Now we can say it is strong enough! 

The surprise was not just in the newly created jobs, the Average Hourly earnings also by remaining unchanged at 5.2% annually, increased by 0.5% monthly to show that the annual wage inflation also increasing. This increase in wages can lift the production price and inflation, which means that the final price that consumers use and consumer price inflation (CPI) also can increase, or at least will be hard to decrease in the near future.  

This surprise after yesterday's BoE meeting can increase the global recession possibilities. On Thursday, the Monetary Policy Committee (MPC) of the Bank of England voted 8:1 to raise interest rates by 50 basis points to 1.75% (the highest level since December 2008). It was also the largest rate hike by the central bank in 27 years.

In addition, the committee is expected to reduce its balance sheet, by selling Treasury bonds from September, but the details of its actions will depend on market conditions. 

Besides the decision made by BoE, the central bank also predicts that inflation can raise over 13.3% in October this year (previously forecast at 11.0%). In the process of curbing inflation, it is clear that the Bank of England has lagged behind in raising interest rates. Considering this situation, BoE accepted that the UK economy can enter a recession in the last quarter of this year and would continue for five quarters.

In the end, with these data and outlooks, now it is so likely to see that FED based on labor market data argues that the US economy is strong enough to withstand more austerity policies and increase the rates by another 75 bps. So, more demand for the US dollar and pressure on the stock markets is likely to continue in the next weeks, unless upcoming inflation numbers can cooler the markets, which is unlikely for now. 

From the technical point of view, SP500 in the bigger picture is still in a downtrend, and if the price falls under 4,000 (20 DMA), it can fall even deeper.

Source: IFC Markets
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