Strong US employment growth fuels fears of interest rate hikes

The probability of an interest rate hike surged to 72.8% following US Department of Labor data showing non-farm payroll growth of 165,000. This stronger-than-expected employment figure, which more than doubled the market consensus of 65,000, has created a "Good is Bad" paradox that is pressuring risk assets.

Employment indicators for the US economy are showing strong growth that exceeds market expectations, injecting tension into financial markets. Analysis suggests that robust employment data is creating a "paradoxical situation" where strong indicators increase pressure for interest rate hikes, negatively impacting stock and asset markets.

According to an analysis provided by The Man Who Explains the Economy (Kim Kwang-seok TV), the employment data released by the United States Department of Labor was very strong. Non-farm payroll growth was recorded at 165,000, which is more than double the market consensus of 65,000 and represents a sharp increase compared to the 60,000 recorded in the previous month.

Unemployment rate remains at 4.1%, entering 'maximum employment' zone

The unemployment rate, an indicator of employment quality, was also solid, recording 4.1%, the same as the previous month. While the market expected the unemployment rate to hold at the 4.2% level, the actual result was lower. Crucially, the rate continues to remain below 4.5%, which is commonly used as the baseline for employment health in the US economy.

Wage growth also supported the strength of the labor market. Although the market predicted wage growth would drop significantly to 2.9%, it actually recorded a level of 3.1%, showing a higher figure than expected. This reflects the tendency for wage growth pressure to be maintained as long as employment remains strong.

'Good is Bad'... Probability of interest rate hike surges to 72.8%

Strong employment indicators are paradoxically acting as bad news for financial markets. This is because if the economy is too healthy, pressure increases to keep interest rates high or to implement additional hikes to maintain price stability. Professor Kim Kwang-seok diagnosed this as a "Good is Bad" situation, where "employment is so solid that interest rates must be raised to contract the economy, meaning good indicators lead to bad results."

In fact, the projected probability of an interest rate hike surged from 66.1% just before the employment data announcement to 72.8% immediately after. Because employment was good, vigilance regarding interest rate hikes increased. This trend led to rising Treasury yields and a strong Dollar Index. As the value of the dollar rises and Treasury yields increase, the value of risk assets such as gold, stocks, and cryptocurrency faces downward pressure.

The US economic growth rate is also expected to continue its robust trend. The US economic growth rate (final figure for the third quarter) announced last month recorded a historic level of 3.2%. Considering that employment is a lagging economic indicator, the strong growth in the third quarter is expected to have a positive impact on fourth-quarter employment indicators. Combining the fourth-quarter growth estimates from the Federal Reserve Bank of Atlanta and the Federal Reserve Bank of New York, the US economy is predicted to maintain a robust growth rate of approximately 3.12%.

Direction of December FOMC depends on inflation indicators

The direction of future monetary policy is expected to focus on the final FOMC meeting scheduled for December. Currently, the prevailing analysis is that there is a high possibility of an additional interest rate hike in December following the one in September. However, major inflation data to be released in November, such as the Consumer Price Index (CPI), Producer Price Index (PPI), and Personal Consumption Expenditures (PCE), are variables.

If the inflation indicators released during the month of November show a trend of stabilizing compared to September, an additional interest rate hike in December could be deferred. Conversely, if the inflationary trend continues or if geopolitical tensions in the Middle East are not resolved, it will appear difficult to avoid an additional interest rate hike in December.

Market analysis suggests that recent US midterm election results and concerns over the adjustment of data center construction speeds have influenced semiconductor exports, leading to preemptive price adjustments for major companies such as Samsung Electronics and SK hynix. With the added pressure of interest rate hikes due to these employment indicators, volatility in the stock market is expected to continue for the time being.

Source: original video (YouTube)