Last week saw one of the strongest US jobs data reports since this recovery started in 2009. However, the unemployment rate of 6.1% (now only marginally off the 20 and 60 year average unemployment rate of 6.0%), masks a very soft labour market. The continued growth of part time jobs reflects the structural challenges and changes to the US economy. The equity rally has continued unabated and there’s still time to participate in the rally. The Federal Reserve views the totality of the labour market and not simply the headline unemployment rate or the stock market index to determine future policy. Price to Earnings (P/E) expansion can see stocks rise even if earnings lag and play catch up. We have seen this in Europe and the US over last two years. In the Eurozone the reduction in Public Investment is proving to be a major drag on growth. If this were to continue, the Eurozone runs the risk of falling into a new lower trend growth rate. Last week, European Central Bank President Mario Draghi reiterated the ECB’s accommodative stance. Emerging Markets will be a bigger story in the second half of this year. The new government in India will push on the infrastructure and manufacturing front to build the capital stock, meet energy needs, and herald much needed supply side reforms.
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