Hiring warnings — premature? By Reuters

A look at the day ahead in markets from Sujata Rao

Much of the inflationary heat across the developed world has been generated by labour shortages. But of late, a raft of U.S. corporations — Meta, Tesla (NASDAQ:), Apple (NASDAQ:) and Goldman Sachs (NYSE:) among them — have warned they will slow hiring.

The warnings tanked Wall Street by reinforcing — alongside dismal housing data — the picture of a cooling economy. Asian shares fell too, with China’s rising coronavirus case load keeping alive fears of more activity curbs, and European markets are easing off one-month highs.

But hold on. Demand for workers is not abating just yet. Following on last month’s robust U.S. payrolls, British figures on Tuesday revealed unemployment at 3.8% in the quarter to May. That bucked expectations for a slight rise.

Recent stock market gains were partly down to relief the U.S. Fed may not opt for a 100 basis-point rate hike in July. But policymakers elsewhere are not holding back on hawkish rhetoric.

While the UK jobs data reinforces the case for a 50 bps Bank of England rate increase next month; rate-setter Michael Saunders on Monday forecast rates — currently 1.25% — would reach or surpass 2% during the next year.

The Reserve Bank of Australia, meanwhile, reckons rates remain too low to contain inflation expectations. Current rates at 1.35% are too far below ‘neutral’, levels estimated between 2%-3%, it decided.

Especially so, given unemployment dived last month to a 48-year low of 3.5%.

The dialling back of more aggressive bets on Fed policy-tightening and the ratcheting up of rate hikes elsewhere lifted the Aussie dollar half a percent versus the greenback, while the pound is up 0.2% and the beleaguered euro too has managed a 0.2% gain.

Nowhere is the situation as perilous as the euro zone; news Gazprom (MCX:) has invoked force majeure on some gas supplies raises fears Russia will keep the Nord Stream 1 pipeline mothballed beyond July 21, when the link is due to open.

Key developments that should provide more direction to markets on Tuesday:

-EU industry and trade ministers meeting 

-U.S. earnings: Johnson & Johnson, Halliburton (NYSE:), Lockhead Martin, Netflix 

-EU earnings: Swedish Swedbank reported a smaller-than-expected Q2 net profit

-U.S. June housing starts