The S&P/ASX 200 Index (ASX: XJO) is enjoying a strong run higher today.
In late morning trade on Monday, the benchmark Aussie index is up 0.6% at 7,673.8 points.
Barring an unexpected turnaround, this will mark the third consecutive day of gains for the ASX 200, which closed up 0.6% on Friday and 0.2% on Thursday.
The Australian stock market is following the bullish lead of US markets.
On Friday, the S&P 500 Index (INDEXSP: .INX) closed up 1.3%. And the tech-heavy Nasdaq Composite Index (INDEXNASDAQ: .IXIC) finished the day up 2.0%.
Here's what's happening.
ASX 200 lifts on 'bad news'
Much of today's rally looks to be driven by some poorer-than-expected economic news out of the US on Friday.
As we often see, bad news for the US or Aussie economies often translates to good news for ASX 200 stocks. That's because any deterioration in economic data indicates that central banks are winning their struggle with inflation.
In turn, that means investors could be looking at some highly anticipated interest rate cuts sooner than feared.
US markets soared on Friday after the Bureau of Labor Statistics reported that the world's top economy added 175,000 jobs in April. That's sharply below the 315,000 added in March, and came in below consensus estimates of 240,000. It also marks the smallest jobs gain posted in the US in six months.
While still low by historic standards, the US unemployment rate of 3.9% also topped consensus forecasts of 3.8%.
What are the experts saying?
Commenting on the employment data that's helping boost the ASX 200 today, Olu Sonola, Fitch Ratings head of US economic research, said (quoted by Bloomberg), "For those looking for a rate cut sooner than later, this deceleration in payroll growth is good news, and the weaker wage growth number makes it even better news."
But Sonola cautioned investors not to get ahead of themselves, adding:
However, one month does not make a trend, so the Fed will likely need to see a few months of this type of moderation coupled with better inflation numbers to put rate cuts back in play sooner than later.
Jeffrey Roach, chief economist for LPL Financial, said the slowdown in jobs growth ups the odds of a 2024 interest rate cut from the world's most influential central bank.
"The demand for labour is slowing, which will eventually ease inflation pressures, giving the Fed some leeway to cut rates later this year," he said (quoted by The Australian Financial Review).
Roach added, "Slower payroll growth and fewer hours worked imply the economy is slowing at a measured pace. This jobs report is consistent with the soft landing narrative."
On the home front, ASX 200 investors will be carefully watching the RBA's upcoming interest rate decision, due out at 2.30pm AEDT tomorrow.
