Following days of volatility, fuelled by fears of a US recession, global markets have calmed this morning, following a more optimistic-than-expected report on US employment.

The US Labour Department released data showing that unemployment claims in the US are not rising at the rate expected, that in fact, the number of first time claims fell last week to 233,000. This news offset fears of recession that were sparked by earlier reports of unemployment hitting 4.3%.

The major markets collectively breathed a sigh of relief. The S&P 500 index rose 2.3%, the Dow Jones Industrial up 1.8%, while the NASDAQ gained 2.9%. The FTSE gained 0.7% and markets across the globe saw similar trends.

However, analysts warn that this new sense of calm after the storm may be premature. The US report on July’s inflation is still due and speculation as to how this will impact how much the Federal Reserve chooses to cut interest rates (as expected) in September could cause more turbulence in the market.

According to Jun Bei-Liu, portfolio manager at Tribeca Investment Partners, ‘the Fed is now likely to cut rates up to 50bps in September which in turn supports expanding valuation for the market.’

There is also the looming presidential election. Republican candidate Donald Trump has stated that the next president should have a say in Fed decisions, marking a potential threat to its independence. Whether he gets the chance to act on this threat remains to be seen, with polls showing Democrat Kamala Harris now 11 points ahead.

However, traders are bracing themselves for more instability in the months ahead.

(Sources: bbc.co.uk, reuters.com)