US equity markets are on course to open around half a percentage point higher on Monday, adding to Friday’s gains which came following an encouraging jobs report for February.
The numbers we saw on Friday provided the perfect balance of strong job creation and softer wage growth which does not necessarily trigger faster rate hikes. The much higher participation rate was a clear reminder that, while unemployment is at a 17-year low, there is still some slack in the economy which may take longer to sort out and explain why wage growth and inflation is so muted.
This is why we didn’t see the kind of knee jerk reaction in the markets that we saw a month ago. Policy makers will likely be looking at the data and see it as evidence that slack still remains and no additional tightening is needed as a result of the strong employment gains. Of course, this is just one jobs report and future reports could show stronger wage growth but for now, investors are comfortable with the numbers.
Another apparent softening in Donald Trump’s stance on trade tariffs is also providing a small boost to sentiment this morning. Trump is clearly using these tariffs to force the hand of those allies that he believes are taking advantage of the US. Whether this is the best way to get more cooperation is another matter but investors are becoming more encouraged by his recent acknowledgement that a reduction could be imposed for some countries.
This week is looking a little quieter than the last couple but there are some notable things that traders will have an eye on. The inflation and retail sales data from the US over the next couple of days stands out, particularly following those jobs numbers on Friday. Tomorrow’s CPI number isn’t the Fed’s preferred measure but, coming a week before the March Fed meeting when another rate hike is expected, as well as new economic projections, it will be monitored very closely.
