Many investors might be surprised at how markets jumped on stronger-than-expected US jobs numbers on 6 January.

A tight labour market is one of the inflationary pressures which the Federal Reserve studies when it decides on interest rates. Non-farm payrolls increasing 223,000 in December against the 200,000 expected would imply a harsher line from Fed chair Jerome Powell and his colleagues, namely a case to keep raising interest rates.

However, beyond the headline there were some details around wage growth which enabled the market to take the view that the Fed could soon reduce the pace of rate hikes. Premier Miton US Opportunities (B8278F5) manager Hugh Grieves says: ‘Chairman Powell will take comfort in the fact that real wage growth is decelerating faster than expected.’

US average hourly earnings rose 0.3% in December from the previous month, against the 0.4% forecast, and 4.6% from December 2021, the lowest year-on-year increase since August 2021.

The latest ISM purchasing managers’ index data for the services sector, released concurrently with the labour market update, offered further evidence of a slowdown in the economy which might encourage the Fed to ease up on rate hikes.

The reading of 49.6 for December was far worse than the 55 the market expected and suggested the US services space is contracting. PMI surveys are a leading indicator of economic health with purchasing managers at businesses paid to react quickly to changing conditions.

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