“The employment figures in the United States are the compass of the markets”, likes to repeat a bond manager. The reasoning is simple: if the job market holds up, it means that the expected slowdown in the economy is not enough to reduce inflation and that the central banks, led by the Federal Reserve, will continue to tighten monetary policy and raise interest rates.
And it is this reasoning that shook the stock market indices on Thursday July 6 and raised European short rates (2 years) to their highest since 2008. In Paris, the CAC 40 fell by more than 3% and fell back below the threshold of 7,100 points. The Euro Stoxx 50 is close to a 3% drop and the European index of the 600 first capitalisations, the Stoxx 600, is down more than 2%. This is without doubt one of the worst stock market sessions since the bank panic last March.
However, job vacancies in the United States have fallen back below the 10 million mark, a sign of a (slight) slowdown in the American labor market. But not enough, according to investors, to dissuade the American central bank (Fed) from giving up at least two new increases in its key rates in July and September, by 25 basis points each time.
The rise too
After inexplicably passing its turn in June, the Fed has tightened its tone significantly in its desire to calm the still robust US economy, despite a total rate hike of 500 basis points since March 2022 – the pace the most sustained rise in forty years – thus bringing the objective of fed funds at 5.00%-5.25%. This relative good health of employment in the United States was supplemented that same day by a rather positive ISM index (economic barometer) in services. However, it is in services that inflation remains high in the United States, a source of major concern for the central bank.
The lull in interest rates, so hoped for in the first quarter, is therefore not for tomorrow, nor for the end of the year. The situation is more fragile in the euro zone, but the European Central Bank (ECB) does not want to be royalist any more than the Fed, at the risk of raising too much.
2023-07-06 16:47:00
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