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Business

Following a strong job report, Wall Street expects a lower Fed decline in July




  • The US economy added 224,000 jobs in June, more than expected economists.
  • Friday jobs report was a positive economic data point showing that the longest economic expansion is still running.
  • The stock market happened after the report, and dealers lowered their expectations of half a percentage point cut in the Federal Reserve's interest rate this month.
  • Read more at Markets Insider.

The US economy added more jobs in June than expected economists, and reversed what seemed to be a slowdown in job growth during the longest economic expansion.

Now, the Federal Reserve is less likely to lower interest rates in July by as much as the market had hoped to stimulate an economy that seems to run just fine alone.

Traders are still pricing with a 1[ads1]00% probability of a supplement in July, but with less than expected. CME's FedWatch tool showed on Friday that Fed expectations to lower the benchmark price by 50 basis points dropped to 9% from 29%. However, the market is still pricing with 25 basis point cuts – expectations rose to 91% from 70.8%.

"Not only was the number strong enough to take a 50bp rate cut off the table, but it was also just high enough to add a shadow of doubt to a July cut, too," Scott Buchta, head of fixed income strategy at Brean Capital, in a note.

The better-than-expected job number came after both the debt and stock markets were priced in several interest rate statements by the Federal Reserve over the year. The bond market has screamed for a price cut for a while – a bond report sent dividends of 10-year Treasury's below 2% before Friday's report. In addition, the S & P 500 had increased to new levels of speculation that the Fed will lower prices, which would give the market even more steam to drive.

Market activity after the job report suggested that confidence in a Fed cut was faded.

Fixed assets, which investors flock during volatility times or when it looks like riskier assets that stocks are going to slip, fell on the positive job data. As Treasury sold, the 10-year return rose above 2% and the 2-year-old rose to 1.88%. Gold fell below $ 1,400, an important psychological price point for precious metal. The dollar rose against each other G10 currency and upward momentum could continue, Lukman Otunuga wrote of FXTM in a Friday match.

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"The employment picture continues to be one of the positive to the US economy," says Ryan Detrick. senior market strategist for LPL Financial. "The services and production are both slowing down, but the good news is that we do not see a recession on the horizon and still strong job data is one of the main reasons."

To be sure, not everyone believes economists that the Fed should move prices at all in July.

"The economy does not need the Fed to ease, but the market continues to scream for action July 31," wrote Ian Shepherdson, chief economist at the Pantheon Macroeconomics.

Nevertheless, he believes that a Fed cut is on the table when the job report alone is not enough to keep the Fed from relief.

"This Fed will not disappoint unless the data between now and then is so clear that the market expectations change significantly. It is quite possible, but do not bet on it, "he wrote.

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