Views on the News

What you’ll learn:

• Slowing US jobs market raises hopes of interest rate cut
• First quarter growth eases fears of Eurozone stagflation.

Headline 1: Slowing US jobs market raises hopes of interest rate cut

The US added far fewer jobs than anticipated last month, offering the latest sign of a cooldown in the world’s largest economy and raising market expectations that interest rates will be cut.

According to data from the US Bureau of Labor Statistics, the economy generated 175,000 jobs in April, well below Wall Street analysts’ expectations of a 243,000 increase.

The number of jobs created fell from 315,000 in March. Meanwhile, the unemployment rate crept up to 3.9% from 3.8%, above analysts’ forecasts. Wages increased by 0.2% over the month to April, which was less than expected.¹

Sean Markowicz, Senior Investment Strategist: Signs of cooling job market growth and rising unemployment helped risk assets and bonds to rally significantly last week as markets upped their bets on imminent interest rate cuts. Lower interest rates are viewed as a positive for investor sentiment given the stimulating effect it could have on the economy.

Signs of sticky inflation have hitherto forced investors to scale back their expectations of such cuts. However, central bankers have signaled that their appetite to loosen policy would likely increase should the labour market weaken, hence the market reaction.

Headline 2: First quarter growth eases fears of Eurozone stagflation

Economic growth in the Eurozone accelerated at the fastest pace in two years at the start of this year, helping the bloc to shrug off fears of stagflation.

Output across the single currency area rose by 0.3% in the first three months of the year, up from 0% in the previous quarter and the best growth rate since Russia’s invasion of Ukraine in 2022.

Separate data from Eurostat, the statistical office of the European Union, showed that annual consumer prices inflation was stable at 2.4% in April, unchanged from March, matching the weakest reading since July 2021 and in line with expectations.²

Sean Markowicz, Senior Investment Strategist: The rebound in Eurozone activity suggests the worst of the drag from high interest rates has likely ended after two years of sluggish growth. In particular, the services sector has started to expand even though manufacturing remains in contraction, as per the latest business surveys.

Taken together, markets still expect imminent interest rate cuts from the European Central Bank given improving inflation data, but the likelihood of aggressive cuts has fallen as economic risks may no longer be tilted to the downside.