Market celebrates rising US unemployment

SÃO PAULO, SP (FOLHAPRESS) – Data showing a slight increase in unemployment in the United States created a momentary wave of confidence in global financial markets this Friday (2). Euphoria faded throughout the afternoon after news that a gas pipeline supplying Europe with gas to Russia would not be restarted this Saturday (3).

Markets in Europe and markets in South America, which had closed before news of a worsening gas crisis, showed gains. The dollar lost steam globally, a day after reaching its biggest value in two decades.

In Brazil, the stock market’s benchmark index rose 0.42% to close at 110,864 points, maintaining at least part of the positive sentiment from abroad.

In Europe, an index measuring the performance of shares of the region’s 50 largest companies rose 2.54%. The Frankfurt Stock Exchange rose 3.33%.

The New York stock market rose more than 1% early in the day after the jobs report, but turned negative by the end of the session. The benchmark S&P 500 was down 1.07%.

The explanation for market fans for rising unemployment in the US is the belief that the central bank (Federal Reserve, US Federal Reserve) will be less strict regarding its policy of raising interest rates to control inflation in the country.

As the labor market slows, upward pressure on wages is expected to ease, resulting in lower consumer prices.

The U.S. Labor Department’s monthly employment report showed the unemployment rate rose to 3.7% in August. With this, it reached a level higher than the pre-Covid pandemic of 3.5% for the first time.

“Slightly higher unemployment and slightly weaker average hourly earnings suggest a bit of wage deflation. Good for the Fed. It’s in line with targets,” said Alex Lima, chief strategist at Guide Investimentos.

315,000 jobs were created last month. Although still strong, the new number of open positions is below 526K in July.

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Weak jobs generation in August doesn’t mean the U.S. job market is on the brakes. As The Wall Street Journal reported this Friday, the country has nearly two vacancies for every unemployed person.

But from an investor’s perspective, the report eased concerns by showing the Fed could succeed in cooling the economy without raising interest rates higher than expected.

Very high interest rates in the United States encourage investors around the world to invest in US fixed income, more precisely, in the country’s treasury bonds. This reduces the availability of cash to invest in company shares.

There is a consensus among analysts on the need to tighten credit to balance the relationship between supply and demand in consumption. Fear of dosage.

Instead of a dip in economic activity that would signal a global recession, the market prefers a soft landing.

In the short term, investors await the Fed’s meeting at the end of September to find out how fast the decline will be.

In an optimistic scenario, the country’s interest rate, currently at 2.5%, would be raised by 0.50 percent. A 0.75 point increase, repeating the level used at the two most recent Fed meetings, is considered aggressive.

Claudia Rodrigues, an economist at C6 Bank, wrote in an analysis of U.S. payrolls this Friday that August’s 315,000 new jobs “didn’t put a dent in the Fed’s goal of keeping inflation under control.”

He highlighted the 178,000 jobs created between 2018 and 2019, a figure “well above the pre-pandemic average”.

“These numbers show a very warm job market, a result of the strong economic stimulus provided during and after the pandemic,” he said.

Rodriguez also says the central bank will need to adjust by at least 0.75 basis points to lower the price index by early September, currently at 8.5% annually. “The path indicated by the central bank so far has not been sufficient to bring inflation back to the target of 2% per annum.”

The dollar fell after its biggest global rise in two decades

On the Brazilian foreign exchange market, the trading dollar fell 0.97% to R$5.1870. Internationally, the DXY index, which tracks the U.S. currency against major global currencies, was down 0.07%, after advancing the previous day to its highest daily close since 2002.

Cristian Quartaroli, economist at Banco Ourinvest, says the dollar’s decline reflects the market’s reception of employment data in the US.

“The market understands that the US Federal Reserve may be less aggressive with interest rate hikes there,” Quartaroli said. “This decision helps the dollar fall here.”

So, the day before the Labor Department report, investors intensified competition for dollar-linked assets and led the U.S. currency to revive the world’s biggest rise in two decades.

Since last week, the central banker’s speech during the central bankers’ symposium in Jackson Hole has been echoing in the markets.

Jerome Powell said Americans are entering a painful period of slow economic growth and unemployment.