Strong US wage growth upsets last week's thinking while JB Hi Fi plays out a buy the rumour sell the fact scenario
Stronger than expected US wage growth has called into question last week’s accepted wisdom that the US Dollar would fall as moderating economic growth pressured the Fed to delay its rate hike programme.
The 0.5% increase in hourly wages and another drop in the unemployment rate have markets on alert for the possibility that the US economy is entering the next phase of its recovery. This is a stage where job growth slows as the recovery matures but wage growth begins to pick up as the supply of skilled labour tightens. More evidence is required to conclude the US economy has reached this stage. If it has, the Fed will have reason to get ahead of improving inflation with its rate increases.
The bounce in the US Dollar, following better than expected US wage growth also has markets nervous about how sustainable the recent rally in oil and other commodities is. This has put pressure on energy stocks this morning.
Monthly figures on China’s Foreign Exchange Reserves have gained new prominence with markets focussing on the size of the war chest available to defend the Yuan. The January data released over the weekend helped to settle short term nerves with reserves being run down less than generally expected.
JB Hi-Fi’s result shows a continued pattern of winners and losers in the patchy and rapidly evolving, retail sector. The company has been able to produce solid same store sales growth and it’s pleasing to see this continue in January. Despite this solid result, the market appears to be playing out a ‘buy the rumour sell the fact’ scenario for JB Hi Fi, with the stock now down 9% from its peak after very strong gains during January.
Frequently Asked Questions about this Article…
Stronger US wage growth can lead to an increase in the US Dollar's value as it suggests a robust economy. This may prompt the Federal Reserve to consider raising interest rates sooner to manage inflation, affecting investment strategies.
The recent US wage growth suggests that the economy might be entering a mature recovery phase where job growth slows but wage growth picks up due to a tighter supply of skilled labor. This phase could influence the Federal Reserve's decisions on interest rates.
Energy stocks are under pressure because the stronger US wage growth led to a rise in the US Dollar, which can make commodities like oil more expensive for foreign buyers, potentially affecting demand and stock prices.
China's Foreign Exchange Reserves are crucial for defending the Yuan's value. Recent data showing a smaller than expected reduction in reserves has helped calm market nerves, indicating stability in China's economic management.
JB Hi-Fi has shown solid same-store sales growth, continuing its pattern of success in a challenging retail sector. However, despite strong performance, its stock has seen a decline, possibly due to a 'buy the rumor, sell the fact' scenario.
The 'buy the rumor, sell the fact' scenario refers to investors buying stocks based on anticipated positive news and then selling once the news is confirmed. This has led to JB Hi-Fi's stock dropping 9% from its peak despite strong sales growth.
The US Dollar's recent bounce is significant because a stronger dollar can make commodities like oil more expensive for international buyers, potentially impacting global demand and market prices.
Investors should consider the potential for interest rate hikes due to US wage growth and the mixed performance in the retail sector, as seen with JB Hi-Fi. These factors can influence investment strategies and market dynamics.
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