The US economy has shown strong job additions with Non Farm Payrolls for June coming in at 288,000 jobs added. Unemployment rate printed at 6.1%, an almost six year low. US economy has continuously added jobs on a month on month basis for over two years.
In calendar year 2014, job additions have been the following,
January 2014- 129,000
February 2014 – 188,000
March 2014 – 203,000
April 2014 – 282,000
May 2014 – 224,000
June 2014 – 288,000
US unemployment rate has dropped from 6.6% seen in January 2014 to 6.1% in June 2014.
The US economy is definitely strengthening though the pace of strengthening is not adding inflation worries to the Fed. The Fed is on course to end bond purchases by end of this calendar year and start raising interest rates from close to zero percent levels from 2015.
Market reactiion to the June job numbers was positive with US equities rising to record highs. Dow crossed the psychological level of 17,000 for the first time ever and the S&P 500 is on its way to cross 2000 levels. USD strengthened against the Euro and Yen while ten year US treasury yields rose.
The US economy is expected to show continued improvement even as economies such as the Eurozone limp along. However given that the US economy is the largest in the world it has the capability to pull up world economic growth.
India is in a sweet spot at this moment with a stable government at the centre post the election of Modi as the PM, Sensex and Nifty trading at record highs and optimism all around in the economy. India will benefit from an expansion in the US economy as the technology sector that derives over 55% of revenues from the US sees strong order flows. India’s exports too will see growth as world trade expands on US growth.
Global risk aversion too will fall as economic growth improves in the US and financial markets stay stable even as Fed withdraws excess stimulus. India will benefit from the global risk aversion and flows into equities and bonds will be positive. The INR will benefit from positive FII flows into INR assets.