A tepid April jobs report provides a “big sigh of relief” for markets and may bring the prospect of interest rate cuts back into the picture for 2024, said Matt Peron, director of research and global head of solutions at Janus Henderson Investors. Janus Henderson has $352.6 billion in assets under management.
Mohamed A. El-Erian, chief economic adviser at Allianz and former CEO of Pacific Investment Management Co., described the jobs data as a "Goldilocks" report that “both the Federal Reserve and markets will embrace,” in a post on X (formerly Twitter). Allianz has €2.22 trillion ($2.26 trillion) in AUM.
Alexandra Wilson-Elizondo, co-CIO of multi asset solutions at Goldman Sachs Asset Management, said the labor data should provide the markets with a “welcome breath of fresh air.” However, she cautions that when rate cuts do arrive, they will not be as aggressive as the rate hike cycle had been, meaning there will be a likelihood of “fewer and slower cuts.”
GSAM has $2.85 trillion in assets under supervision.
The U.S. economy created 175,000 jobs in April, well below the upwardly revised figure of 315,000 from March, and also below expectations, the U.S. Bureau of Labor Statistics reported on May 3. The unemployment rate clocked in at 3.9%.
Economists had expected an increase of 235,000 jobs in April with the jobless rate at 3.8%, according to a survey by FactSet Research Systems, a financial data firm.
In April, job gains were especially pronounced in the health care, social assistance, transportation and warehousing sectors, the bureau added in its release.
The February 2024 payroll was downwardly revised to 236,000, while the figure for March was revised up to 315,000. As a result of these revisions, employment in February and March combined was 22,000 lower than previously reported.
Over the past 12 months, an average of 242,000 jobs were created per month. The Federal Reserve will likely consider the strength of the labor market when it releases its next policy decision on June 12.
As of the morning of May 3, according to CME Group's FedWatch tool, market participants' pricing of fed fund futures indicated there is an 86.5% probability that the central bank will keep rates unchanged at the next meeting, and only a 13.5% probability it will cut rates by 25 basis points.
The Fed’s key short-term interest rate is currently in a range of between 5.25% to 5.5%, after the central bank again elected to hold rates steady for the sixth straight time at its last meeting on May 1.
In a speech on May 1, Fed Chair Jerome Powell said that an “an unexpected weakening in the labor market” would be one path to rate cuts.
However, with inflation still running relatively high and above the Fed’s 2% mandate, some other asset managers are skeptical about any imminent rate cuts.
Glen Smith, chief investment officer at GDS Wealth Management, with $1 billion in AUM, said the weak April payroll data is “unlikely to change the Federal Reserve's hesitancy to cut interest rates in the near-term, as there have still been several months of strong jobs and inflation data and it's clear that inflation is still too far above the Fed's 2% target to justify a rate cut.”
Matt Rowe, head of portfolio management and cross asset strategies at Nomura Capital Management, commented that the market is “clearly viewing today's employment data as support for the case that the Fed may (or) should reduce rates sooner and faster than they may have prior to today's data.”
However, Rowe also noted that the Fed is setting policy on the front end of the curve. “The yield curve continues to be inverted — front end higher yield than back end — and lowering rates on the front end of the curve doesn’t solve all of the problems that companies and consumers may be facing.”
