Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

Investors shrugged off last week's worries over the U.S. economy to drive a powerful, tech-led rebound across global stocks on Monday, although U.S. Treasuries prices held onto Friday's gains, suggesting a fair degree of caution persists. 

More on all that below. In my column today I look at why, rather than firing the head of the BLS, President Trump could have claimed that the weak jobs data and dramatic market reaction vindicated his stance that the Fed should cut rates. 

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After getting slammed on Friday by unexpectedly poor U.S. employment figures, U.S. and world stocks rebounded strongly on Monday. Whether this is a short-term technical recovery or the resumption of the bull run of recent months remains to be seen.

In isolation, the positive start to the week has been pretty impressive. Wall Street more than recovered the ground it lost on Friday, led by the Nasdaq and Russell 2000 as investors bet that both tech and small caps would be among the big winners in a lower interest rate world.

The global recovery was probably overdue - the MSCI All Country index's rise on Monday snapped a six-session losing streak, its worst run in nearly two years.     

While Friday's slump in U.S. bond yields reflected deepening growth fears and contributed to the huge equity selloff, the further drift lower in yields on Monday supported equity sentiment.

The feelgood factor could prove fleeting though. The U.S.-centric issues that drove last week's selloff - growth fears, tariff concerns and unusually high levels of policy uncertainty - haven't disappeared. 

President Donald Trump said on Monday he will substantially raise tariffs on goods from India over its Russian oil purchases, while Switzerland says it is ready to make a "more attractive offer" to Washington to avert the steep 39% tariffs it is facing.

Investors are increasingly nervous about political interference in independent U.S. institutions after Trump fired Bureau of Labor Statistics Commissioner Erika McEntarfer for allegedly rigging the jobs data. This comes amid Trump's verbal attacks on Fed Chair Jerome Powell for not cutting interest rates, and as he prepares to announce his nomination to replace Fed Governor Adriana Kugler who surprisingly resigned on Friday.

Looking ahead to Tuesday, the U.S. earnings calendar heats up again and purchasing managers index data will give an insight into how the service sectors in many of the world's major economies fared in July. 

U.S. President Donald Trump's decision to fire a top labor official following weak jobs data obviously sends ominous signals about political interference in independent institutions, but it is also a major strategic own goal.

Trump has spent six months attacking the Federal Reserve, and Chair Jerome Powell in particular, for not cutting interest rates. The barbs culminated in Trump branding Powell a "stubborn MORON" in a social media post on Friday before the July jobs report was released. 

The numbers, especially the net downward revision of 258,000 for May and June payrolls growth, were much weaker than expected. In fact, this was "the largest two-month revision since 1968 outside of NBER-defined recessions (assuming the economy is not in recession now)," according to Goldman Sachs.

This release sparked a dramatic reaction in financial markets. Fed rate cut expectations soared, the two-year Treasury yield had its steepest fall in a year, and the dollar tumbled. 

A quarter-point rate cut next month and another by December were suddenly nailed-on certainties, according to rate futures market pricing. This was a huge U-turn from only 48 hours before when Powell's hawkish steer in his post-FOMC meeting press conference raised the prospect of no easing at all this year.

Trump's constant lambasting of "Too Late" Powell suddenly appeared to have a bit more substance behind it. The Fed chair's rate cut caution centers on the labor market, which now appears nowhere near as "solid" as he thought. 

Trump could have responded by saying: "I was right, and Powell was wrong."

Instead, on Friday afternoon he said he was firing the head of the Bureau of Labor Statistics, Commissioner Erika McEntarfer, for faking the jobs numbers. Trump provided no evidence of data manipulation.