Jobs report: Strategist's 'critical data point' to watch

Core PCE data released on Friday was hotter than expected. Invesco Chief Global Market Strategist Kristina Hooper joins Yahoo Finance Live to discuss market outlooks ahead of the Jobs report set for Friday.

Hooper finds the PCE data "comforting," noting that the employment sub-index was slightly lower than expected. She suggests this indicates the economy is performing well "but not at the expense of higher inflation." With Federal Reserve Chair Jerome Powell emphasizing the importance of inflation prints, Hooper says this data shows markets "are still on target for a Fed rate cut by the end of the second quarter."

Looking ahead to the Jobs report data due on Friday, Hooper doesn't expect a hot payrolls number to "move the needle" for the Fed's outlook on rate cuts. However, she cautions that an elevated average hourly earnings number could make the Fed "apprehensive." She notes this metric reflects wage growth, which could have "a significant impact on inflation," making it "a critical data point."

With global central banks also assessing whether their economies need rate cuts, Hooper suggests "a period of synchronized" cuts could occur across regions.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video transcript

MADISON MILLS: --here still seeing relatively flat on the S&P. Some strength though in the NASDAQ after that flat month of March. Again, getting that manufacturing data in. This coming as the Fed's preferred inflation gauge, PCE did come in line with expectations, rising 2.8% in February. So what does all this mean for the Fed's rate cut path?

Joining us now is Kristina Hooper, Invesco chief global market strategist. And Kristina, thank you so much for being here. Talk to me about the data that we're getting in this morning, particularly this hotter than expected ISM print. Does that move the needle on any of your thinking or your calls at all?

KRISTINA HOOPER: It doesn't. It certainly comforting to get that print. What it tells us is that the economy is likely better than many had thought. I mean, certainly, it's just one data point, but the new orders subindex was better than expected, which suggests that the future looks bright as well. What's important, though, to recognize is the employment subindex, which was tepid. It was actually slightly lower than expected.

And that suggests that the economy is doing well, but not at the expense of higher inflation, which is critical when we think about the Fed's path. Because what we've heard from Jay Powell over and over again is that he doesn't need to see a deterioration in the economy in order to cut rates. What he's focused on is the inflation data. And so everything that I'm seeing today coming out suggests that we are still on target for a Fed rate cut by the end of the second quarter.

JARED BLIKRE: All right. And let's think ahead to Friday now. What would you need to see in the jobs market to disturb that point of view? In other words, what changes the needle? What moves the needle for the Fed on this Friday where we're expecting payrolls, once again, to be North of 200,000?

KRISTINA HOOPER: So I don't think that a higher than expected payroll number will move the needle for the Fed and cause them to be more apprehensive about rate cuts. What I do think could make the Fed more apprehensive is a higher than expected average hourly earnings. That is the metric that is most important to me in that Friday jobs report.

And quite frankly, every monthly jobs report, it's about average hourly earnings because that's wage growth and that could have a significant impact on inflation. What I've seen thus far would suggest to me that we won't see any significantly higher than expected number, but that's the critical data point to look at.

MADISON MILLS: Well, beyond the data points, we also have the kind of global race to figure out inflation, and of course, potential rate cuts on the table. I know that you called the Swiss National Bank's moves potentially a trend that's going to move the global markets when it comes to rate cuts. Could that be a domino effect that then moves maybe the BOE? And then does that tip the Federal Reserve at all? What's the read-through like?

KRISTINA HOOPER: Absolutely. I think that what we're seeing is central banks beginning that process starting to normalize. For the Bank of Japan, that's something else. In terms of normalizing, that's actually hiking. But for the majority of major developed central banks, it's about starting to cut.

Although what the Swiss National Bank decision signifies is that they're looking inward at their economy and saying that it qualifies for a rate cut. And I think we're just going to see the same thing happen with other major central banks that they'll look inward and say, hey, this is appropriate given what we're seeing in terms of inflation and economic growth.

And they will, though, feel more comfortable because other central banks are doing the same thing. I mean, what we saw was a period of very synchronized rate hikes starting in 2022. And now I think we'll see the opposite in terms of significant synchronicity in rate cuts.