Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley), has commented on today’s US unemployment figures.
US employment rose more than expected in April, with payrolls up 115,000 and the unemployment rate steady at 4.3%. While not necessarily highlighting renewed momentum, given that this is still a slower pace of job growth relative to the previous month, the upside surprise points to more resilience than investors envisaged.
Structurally, slower labour force growth means the economy needs far fewer new jobs to keep unemployment stable, reducing the risk of a sharp deterioration even as hiring cools.
For the Fed, resilient employment alongside lingering inflation risks supports keeping rates unchanged for longer. The bar for near-term cuts remains high.
Markets are likely to interpret this labour market report as consistent with a soft landing, with modest equity gains and little change in rate expectations.
At the same time, higher oil prices linked to the Iran conflict are reshaping the inflation outlook. The impact depends on how long the disruption lasts and whether it spreads.
Europe and parts of the emerging world remain more exposed, while the US is relatively insulated from supply disruptions through the Strait of Hormuz.
An energy shock at this stage primarily raises inflation risks, reinforcing central bank caution. After the strong equity rally since late March, we have reduced risk back to a moderate equity overweight, taking profits and rebalancing portfolios.
Within equities, we rotated away from global small caps, which are more vulnerable to oil price spikes, towards broad US equities, favouring balance sheet strength and resilience.
In fixed income, we increased quality as well, reducing exposure to risky credit markets and buying government bonds.
Also, we selectively added to local currency emerging market bonds for yield, diversification and exposure to oil exporters outside the Middle East.
Gold, commodities and inflation-linked bonds remain core hedges against inflation surprises and geopolitical escalation.
