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Analysts unsure on Fed's next move as new jobs report muddies water

9th Jun 2023 15:04

(Alliance News) - A worse-than-expected jobless claims reading on Thursday eased some nerves heading into next week's Federal Reserve interest rate decision, but analysts are still unsure what the Fed's next move will be.

Stock prices in New York ended higher on Thursday, with bad news for jobs boosting Wall Street.

On Thursday, the Dow Jones Industrial Average closed up 168.59 points, or 0.5%, at 33,833.61. The S&P closed up 26.41 points, or 0.6%, at 4,293.93. The Nasdaq Composite up 133.63 points, or 1.0%, at 13,238.52.

"US markets have moved higher on hopes that the Fed will opt to leave its hiking campaign on pause for longer, after jobless claims came in weaker than expected," said IG Chris Beauchamp.

"Much now hangs on what the Fed says and does next week, and will see increasingly hesitant trading in stocks as the decision nears."

The Fed will announce its rate decision on Wednesday next week. According to the CME FedWatch Tool, on Friday, markets see a 75% chance of the Fed holding interest rates steady next week.

Just one day ago, on Thursday, markets saw an 73% chance of rates remaining in place, showing that confidence in the direction of US interest rates has inched up slightly.

Nerves around interest rate decisions were eased after a weaker US jobless claims reading.

According to the Department of Labor, initial claims for unemployment support in the week ended June 3 totalled 261,000, an increase of 28,000 from the previous week's revised level. The previous week's level was revised up by 1,000 to 233,000 from 232,000.

The four-week moving average was 237,250, an increase of 7,500 from the previous week's revised average. The previous week's average was revised up by 250 to 229,750 from 229,500.

"As a reminder, [last] Friday's jobs report showed a very contrasting picture of the economy, with the household survey pointing to job losses while the headline nonfarm payrolls pointing to another big rise in employment. Judging by the jump in jobless claims, it looks like the jobs market is not as strong as the headline NFP print would suggest," said Fawad Razaqzada, market analyst at City Index and FOREX.com.

On Friday last week, data from the US Bureau of Labor Statistics showed nonfarm payroll employment increased by 339,000 in May, accelerating from a rise of 294,000 in April. That number was revised up by 41,000 from 253,000. March's increase was revised up by 52,000 to 217,000 from 165,000.

The May increase was markedly above FX Street-cited market consensus of growth in jobs of 190,000.

Average US hourly earnings increased by 4.3% over the past 12 months in May, slowing slightly from a 4.4% annual increase in April. The May reading was slightly below expectations of an unchanged 4.4% rise.

Surprise rate hikes from the Bank of Canada and Reserve Bank of Australia this week have also muddied the waters.

"When the Fed met back in May the removal of the language that signalled that more hikes were coming led to the impression that we'd probably see a pause in June, a view that was given some encouragement a few days ago by Fed governor Philip Jefferson in a recent speech just before the central bank went into the blackout period. This still seems to be the favoured outcome; however, this week's rate hikes have muddied the waters somewhat," said Michael Hewson, chief market analyst at CMC Markets.

The Bank of Canada defied expectations on Wednesday and lifted its benchmark rate, after enacting successive pauses, as the central bank grapples with "stubbornly high" inflation.

The BoC, which had been expected to leave the overnight rate unchanged for the third meeting in-a-row, lifted the benchmark rate by 25 basis points to 4.75% from 4.50%. It did not pencil in more hikes to come, however.

On Tuesday, the RBA defied consensus and enacted another interest rate hike. Tuesday's hike took the benchmark rate to 4.10% from 3.85%. It followed a hike of the same size in May. The RBA had paused in April.

There are also decisions from the European Central Bank and the Bank of Japan to look ahead to next week. The Bank of England will make a decision the following week.

By Sophie Rose, Alliance News reporter

Comments and questions to [email protected]

Copyright 2023 Alliance News Ltd. All Rights Reserved.

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