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JOLTS data surprise: What it could mean for June Fed meeting

Job openings unexpectedly rose in April. Invesco Chief Global Market Strategist Kristina Hooper breaks down the data and what it could mean for the Fed.

Video transcript

- Jobs report, that's due on Friday. For more, we welcome Kristina Hooper, Invesco Chief Global Market Strategist. So we had that JOLTS data come in hot today. Frame that for us in the context of this market. We're wrapping up a month, heading into a new month. How do you take this all in?

KRISTINA HOOPER: Well, what the Fed wants to see is a cooling of the economy, right? Because that's what leads to a cooling of inflation. So I think that's why we're seeing markets react negatively is that we got this positive JOLTS report. Now, having said that, though, we have to look at the survey itself-- a very low response rate.

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And that often means that what you see is it's skewed to the upside, because who's going to respond? The ones with more positive news. So it could very well be much ado about nothing. But it does suggest that the labor market is tighter. I mean, we're back above 10 million job openings. And that's a very high level, especially if we compare to pre-pandemic levels of 7 million or less.

SEANA SMITH: So, Kristina, what do you think this means for the Fed just in terms of how the Fed is looking at this? They certainly have left a June rate hike on the table. Do you think that's likely? And do you think we could actually be looking at another one come July?

KRISTINA HOOPER: Well, I actually still am of the belief that the May meeting, they decided to enact a de facto conditional pause. I don't know if many agree with me, probably not.

- Seems so.

KRISTINA HOOPER: Yeah, well, some. I think the idea-- and if we looked at the language and compared it to the 2006 language when they decided to end rate hikes, very similar, and not that dissimilar from Bank of Canada's language back in January when they hit the pause button. So I think what we're going to see most likely is a pause in June, giving time to assess the data-- that's certainly what we heard from Jefferson, from Harker-- and keep that sword of Damocles hanging over markets, right, so that financial conditions don't ease by saying, hey, we might still hike rates in July or beyond. But I don't think we're going to see any more hiking.

- And given the kind of perspective you gave us, what do you see as the sector leaders for the summer?

KRISTINA HOOPER: Well, I think a lot of that is going to have to do with markets forecasting what is to come. So right now, there's a lot of uncertainty. And when we have policy uncertainty, we tend to have a risk off environment. And I think that's going to continue. So we're likely to see secular growth like technology. We're likely to see more defensive areas of the stock market, like utilities, like health care perform better. Larger caps perform better.

But then, once we get clarity on policy, once everyone's certain that the Fed has stopped hiking, and once we get a debt ceiling resolution-- and that means signed, sealed, and delivered-- then I think markets will start to, at a certain point, discount an economic recovery next year. And I think they'll start to discount that in the back half of 2023.

- But isn't the debt ceiling kind of considered rearview mirror now for markets?

KRISTINA HOOPER: Well, it certainly is-- we're in a better place than we were last week.

- Right.

KRISTINA HOOPER: But I don't think it's over until it's signed, sealed, and delivered.

SEANA SMITH: Yeah, that's certain-- that's very important to point out. If we too far ahead, clearly, we could have pretty terrible ramifications over the next several days. Kristina, let's talk about what we have seen just in terms of leadership since the start of the year.

We're rounding out the month of May. We're looking at the best month for the NASDAQ 100 that we have seen-- month of May for the NASDAQ 100 that we have seen in just about 18 years. Certainly, this leadership, mainly driven by many of those larger cap tech names-- are you worried at all just about the narrow breadth that we've seen in the market?

KRISTINA HOOPER: No, Seana, I think you make a good point. That's a really important question to ask. I do think there's always some concern when you see real narrowness in the market. But if we take a step back and look at it in the context of where we are in terms of the market cycle, this is a time in which the economy is slowing down, markets are positioned more defensively, and we typically do see a narrowing of markets.

But we can look ahead to that market discounting an economic recovery. That's usually when we're likely to see a broadening of the stock market. So I think it's not that unusual for where we are right now, although it's never a great story.

- Right. And quick, just to extend on what Seana was talking about a little bit-- the AI craze has really fueled big gains, particularly within the tech sector and these mega-cap stocks. I mean, you had what happened with Nvidia this week hitting that trillion dollar level that is a rarity-- the air is thin up there.

What does that signal to you? Are we in the early stages of those kind of gains that we're seeing? Is this reminiscent of the dotcom bubble to you?

KRISTINA HOOPER: Diane, I'm old enough to tell you I lived through the dotcom bubble--

- So did I.

[BOTH LAUGH]

KRISTINA HOOPER: I don't believe it. Maybe in middle school. But, seriously, this is somewhat reminiscent, because the underlying-- the excitement is for good reason. There is some real underlying growth potential there-- productivity gains, all those things. But it can get effervescent and frothy. And that's what we're seeing right now. I mean, I remember when companies were changing their name to dotcom.

- Yes.

KRISTINA HOOPER: And had nothing to do with the internet at the time. So certainly, there's been this decision made on the parts of-- on the part of many investors that, oh, this is an AI related company, whether or not it really is an AI related play. And there's just a lot of excitement there. I just think it's more of a secular phenomenon.

We go through these stages, and we're living through one now. I think the bigger-- but I think that is a countervailing force right now to what had been rising yields in May. Now, typically, we see tech go down when yields rise. But I think there's just an awful lot of confusion around the Fed and what the Fed is going to do.

A disinflationary process is never perfect. And so we're going to get some ugly data points that make us question whether or not the Fed is going to see us get to the inflation target that it has set. But I do think we're getting there.

SEANA SMITH: Kristina, let's talk about what we're seeing on a global scale, because we just got the recent data out from China. Obviously, the recovery there taking much longer than maybe many investors had initially anticipated. Factory activity falling there to about a five month low. How do you see-- what are, I guess the global implications, economic implications-- why should US investors really take note about what's happening over in China?

KRISTINA HOOPER: So because China is such an important part of the global economy. Whether or not you want to be directly invested in China, you need to pay attention to it. And in fact, there are a lot of plays on China growth that aren't necessarily China stocks. But to focus on your first question, really, what's going on in China-- what we're really seeing is as a tale of two economies, which is not dissimilar to a lot of other developed economies.

When they reopened, what we saw was services do well and manufacturing not do well. And, of course, China is the world's factory. So it is being impacted by the economic slowdown that has been manufactured by central banks all around the world.

So I focus in on China services. And that is still in expansion territory. It's the slowest expansion in the last four months that we've seen, but it's still an expansion territory. I'd like to think that the Chinese economy right now is taking a breather.

But this reopening has real legs. You don't close down an economy for more than three years and then reopen it and see it sputter out after a couple of months. I think this is a very, very long coiled spring. And I think we'll see this play out over many, many, many months.

- Is inflation still cause for concern for the markets going into this next June? I cannot believe we're about to be in June.

KRISTINA HOOPER: Inflation data is still a cause for concern just in terms of expectations about how the Fed will react to it. But I firmly believe that inflation really should be a rearview mirror issue. The Fed has done enough, we just haven't seen a lot of the impact of tightening.

Usually, there's a 12 to 18 month policy lag. So we haven't seen a lot of the damage that the Fed has done to the economy and inflation, but we will. And so I think the better course of action for the Fed is to sit on its hands and wait for it to show up in the data.

- OK. We'll see if they listen. I don't know if they are. We shall see.

KRISTINA HOOPER: Fingers crossed.

- Indeed. And there are some different viewpoints there. So we'll see. Our thanks to you, Kristina Hooper, Invesco Chief Global Market Strategist.