CNBC Daily Open: June’s jobs report won’t deter Fed from hikes

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Modest jobs growth
U.S. nonfarm payrolls increased 209,000 in June while the unemployment rate was 3.6%, according to the Labor Department. Job creation was — for once — lower than economists’ expectations of 240,000, though the unemployment rate, which was 0.1 percentage point lower than in May, was exactly on the mark.

But markets continued sliding
U.S. stocks fell Friday despite data that showed the U.S. economy adding fewer jobs than expected. All major indexes ended the week in the red. In Europe, the benchmark Stoxx 600 Index added 0.1%. But shares of OSB Group, a British financial services provider, sank 28.8% after reporting that its net income would drop by up to £180 million ($230 million).

Restabilizing U.S.-China relations
U.S. Treasury Secretary Janet Yellen wrapped up her four-day trip to China on Sunday. She said she’s had about 10 hours of “direct, substantive and productive” meetings with Chinese officials that will put relations between the U.S. and China on “surer footing.” The world is “big enough” for both the U.S. and China to thrive, she emphasized.

Elon Musk’s troubles
Last week was tough for the world’s richest man. Attorneys for Elon Musk sued the law firm that represented Twitter when Musk was trying to take the company private last year, alleging the firm’s $90 million bill was excessive. Meanwhile, Meta’s Twitter rival Threads racked up 70 million signups in just one day; Twitter’s lawyer accused Meta of stealing trade secrets to build Threads.

[PRO] Eyes on inflation
Now that June’s jobs report is out, investors are turning their attention to the month’s consumer price index, coming out on Wednesday, to get an idea of how high interest rates will go. Big banks will report second-quarter earnings later this week too, giving a picture of how the U.S. economy is doing.

The U.S. economy added 30,000 fewer jobs than expected in June. That doesn’t sound significant.

But keep in mind that the jobs report had been consistently outstripping estimates since February 2022. And on the few occasions when jobs creation dipped below economists’ consensus — such as in August last year or March this year — the number was only lower by a few thousand — never five digits. Furthermore, Thursday’s blowout jobs figures, according to ADP, had primed investors to prepare for another expectation-busting report from the Labor Department.

So: 50,000 fewer jobs than forecast is a big deal. It shows the labor market’s cooling down. But is it enough for the Federal Reserve to hold interest rates steady at its upcoming meeting?

I doubt so. The unemployment rate ticked down 0.1 percentage points to 3.6%, which is still near its 60-year low. Average hourly earnings rose 0.4% in June while the average work week increased 0.1 hours. Those are all signs the labor market’s still adding to inflation.

“Overall, the job market is outstanding,” Chicago Federal Reserve President Austan Goolsbee said on CNBC’s “Squawk on the Street.” But — and this is important — it’s “getting back to a balanced, sustainable level,” Goolsbee added.

Markets, however, were still worried about the damage higher interest rates might wreak. The S&P 500 dipped 0.29%, the Nasdaq Composite slid 0.13% and the Dow Jones Industrial Average fell 0.55%. All major indexes ended the week in the red. For the week, the S&P lost 1.16%, the Nasdaq retreated 0.92% and the Dow sank 1.96%, its worst weekly performance since March.

Whether the Fed will further tighten the tap on the flow of money after its July meeting depends on June’s consumer price index, coming out Wednesday. Investors are hoping it, like June’s jobs report, will defy expectations — in a good way.

Clarification: This story has been updated to correct the number of jobs added in June.