Robust payrolls report lifts equities as Fed outlook shifts
United States (US) equity markets closed mostly higher overnight, with the Nasdaq leading the charge following last week’s sharp three-day, 6% sell-off that reached a crescendo on Friday after a blockbuster jobs report.
Recapping Friday’s jobs data, the numbers were robust. Non-farm payrolls rose 172,000 in May, blowing past expectations of a 93,000 gain, while the unemployment rate held steady at 4.3%. Payroll growth was also revised higher by 64,000 for April and 29,000 for March, marking the strongest three-month advance in more than two years. In response, the US interest rates market aggressively pulled forward Federal Reserve (Fed) tightening expectations, with 27 basis points (bp) of hikes now priced in for December 2026.
AI IPO wave builds as mega listings dominate market focus
In initial public offering (IPO) news, ChatGPT creator OpenAI has filed confidentially for its much-anticipated public debut. Companies often file confidentially to work through Securities and Exchange Commission (SEC) feedback privately and keep sensitive financial details under wraps until they are ready for the spotlight. OpenAI now joins the fast-growing queue of artificial intelligence (AI) giants heading to market, alongside Anthropic (which filed on 1 June) and SpaceX (on track to list as early as 12 June).
As a side note, IG’s pre-IPO market is currently pricing OpenAI at around a $1.37 trillion valuation, Anthropic near $1.63 trillion, and SpaceX at roughly $2.17 trillion on debut, still pointing to a solid +20% gain in SpaceX’s share price from the $135 offer price.
It is worth noting that only a portion of shares will float initially, so while these listings will grab headlines, the immediate cash raised remains in the low hundreds of billions rather than trillions. While this should ease fears over a large amount of liquidity being drawn out of the market, it will still create rotation and concentration risk over the longer term.
Looking ahead, the marquee event on the economic calendar is Wednesday’s US consumer price index (CPI) report for May (previewed below). Given the recent run of stronger economic data, this release has the potential to further amplify concerns around possible Fed rate hikes before year-end.
CPI
Date: Wednesday, 10 June at 1.30pm BST
For April, headline CPI rose 0.6% month-on-month (MoM), lifting the annual rate to 3.8%, its highest reading since May 2023 and up from 3.3% prior. Core CPI, which strips out volatile food and energy components, increased 0.4% MoM, pushing its annual rate higher to 2.8% from 2.6%.
Energy, particularly gasoline, fuelled by Middle East tensions, along with sticky shelter costs, were the primary drivers of the stronger numbers, with goods prices also showing some reacceleration. For May, consensus expects a monthly headline gain of around 0.5%, which would see the annual rate climb to 4.2%. Core inflation is forecast to rise 0.3% MoM, taking the annual rate up to 2.9%.
Coming on the back of a string of stronger data in recent weeks, including Friday’s robust non-farm payrolls report, a stronger-than-expected CPI print would add to mounting fears of a Fed rate hike before year-end. This scenario would likely provide fresh support for the US dollar while putting renewed downward pressure on US equities.