NFP Blows Away Expectations

As evidenced by the June FOMC decision where policymakers opted to hold interest rates steady at 0.50%, employment plays a critical role in decisions related to monetary policy.  However, Friday’s reading of nonfarm payrolls gives credence to the idea that the Federal Reserve may be able to raise rates an additional 25 basis points before the end of the year following the stunning rebound in job creation.  The US economy managed to add 287,000 jobs during the month of June according to the Bureau of Labor Statistics, however, May was revised even lower, falling to only 11,000 new jobs from the 38,000 initially reported.  While widely anticipated, unemployment ticked modestly higher to 4.90% from 4.70% prior. The reaction in financial markets was significant, with key US equity indices surging to the upside and the S&P 500 touching a new intraday record at 2133.00

Following the stunning losses last week at the world’s oldest banking institution, Banca di Monte Paschi dei Siena, traders are shifting their focus, this time from the Brexit fallout to the ongoing nonperforming loan problems encircling the Italian banking sector.  There are fears that this may lead to a new round of contagion across Europe, with Deutsche Bank feared to be the next major risk to the financial system.  The German economy has certainly performed better than other Euro Area peers considering the Government managed to turn budget surplus in 2015 while unemployment, which currently stands at 4.20%, is less than half the comparable Euro Area measure of 10.10%.  However, should Deutsche Bank shares come under additional pressure, the current DAX 30 downward trend could accelerate, potentially forcing the ECB to act in order to boost the region’s financial sector.