Financial markets are finally coming around to the idea that U.S. interest rates are likely to staying higher for longer, driven by Thursday’s blowout private-sector jobs report for June from ADP and the prospect of another strong official labor-market reading on Friday.It’s taken a while to get to this point, but the data finally appears to be too much to ignore.
“The market moves over the last few days— especially in reaction to the whole mosaic of data as far as strong jobs gains, reduced quit rates, manufacturing weakness, and service-sector strength — have woken people up to the idea that the Fed’s job is not done,” Jacobsen said via phone on Thursday. Friday’s nonfarm payroll report from the U.S. Labor Department is expected to show a gain of 240,000 jobs for June, accompanied by a 3.6% unemployment rate, the median estimates of economists polled by The Wall Street Journal. Analysts said that a strong ADP private-sector report can still act as a bellwether for the official figures that follow, though ADP itself has said that it does not try to forecast the government’s monthly job report.
“The stock market has surprised this year mainly because of seven stocks and market breadth is going to struggle from here,” Moya said on Thursday. “If the Fed continues to raise rates, it’s going to get ugly pretty quickly. For the real economy to thrive, we really need inflation to be conquered and we are probably going to see some rough waters from here.”