MARKET UPDATE: US JOB MARKET TEMPERS INTEREST RATE EXPECTATIONS

MARKET UPDATE: US JOB MARKET TEMPERS INTEREST RATE EXPECTATIONS

8th July 2019

LAST WEEK – KEY TAKEAWAYS

US: Job market rebounds in June

• Yields on US government bonds rose and the US dollar strengthened against other major currencies as the US economy beat forecasts to add 224,000 new jobs in June ;
• Meanwhile, trade optimism following the constructive meeting between President Trump and Xi Jinping at the G20 summit propelled US equities to a record high, although Trump threatened additional tariffs on European goods in response to EU subsidies for the aviation industry.
• Omnis view: The rebound by the US job market after May’s setback means expectations of a 0.5% (or greater) rate cut at the Federal Reserve’s next meeting at the end of July might need to be revised.

Omnis 080719
Yield on two-year US government bonds for week commencing 1st July 2019
(source: ft.com)

Europe: Lagarde nominated as new ECB president

• Yields on European government bonds fell following the nomination of Christine Lagarde, currently head of the International Monetary Fund, as president of the European Central Bank (ECB);
• Elsewhere in Europe, Italy avoided EU disciplinary measures after the country’s coalition government pledged to reduce its budget deficit over the next two years.
• Omnis view: Lagarde is considered more flexible and accommodative on monetary policy than other candidates, which led to the bond rally. However, her appointment must be confirmed by the European Parliament.

UK: Carney warning about growth outlook

• Yields on UK government bonds fell as Bank of England (BoE) governor Mark Carney warned that uncertainties including Brexit and trade tensions could weigh on UK and global economic growth.
• Omnis view: The odds of an interest rate cut by the BoE at some stage this year have increased after Carney’s comments.


LOOKING AHEAD - TALKING POINTS

Economic data

• Wednesday- Chinese inflation rate in June; UK monthly economic growth in May;
• Thursday- US inflation rate in June;
• Friday- Chinese imports, exports and balance of trade in June.

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given.