U.S. equities traded in another volatile session on Friday, although pared larger declines as employment data cemented expectations the Federal Reserve will remains on its rate-hike path to combat inflation.
Non-farm payrolls advanced at a robust pace in April adding to expectations that a tighter labour market will increase pressure on employers to boost wages to attract more workers. 428k jobs were added in April in a broad-based advance higher than the +380k forecast with the unemployment rate remaining unchanged at +3.6% compared with estimates for a modest decline to +3.5%. Average hourly earnings were in line with expectations, rising +5.5% as expected and up +0.3% over the month compared to forecasts of +0.4%.
The strong figures are good news for those who believe a recession is imminent, increasing the likelihood that the Federal Reserve may be able to engineer a “soft landing”. The other view is that a tight labour market and wage growth is likely to support inflationary pressures, complicating the outlook for the Federal Reserve. The week ahead will provide further insight into price pressures with inflation data for April due Wednesday forecast to show prices moderating with headline prices rising +8.1% over the year, down from +8.5% in March and core prices rise +6.0% over the year compared to +6.5% for the year to March. Producer price inflation is also due on Thursday and expectations are to also show a moderation in price gains, which would add weight to the view that inflation may have peaked.
The S&P500 weakened -0.57% paring a larger decline of as much as -1.90% finishing the week -0.21% lower posting its fifth weekly decline, the longest streak since June 2011 and closed at the lowest level in about a year. Declines in technology -0.79% and consumer discretionary -1.31% weighed on the index while energy outperformed +2.91% on higher oil prices. The Dow Jones also weakened -0.30%, as did the Nasdaq Composite -1.40% and Russell 2000 -1.69% while the VIX retreated -3.24% to 30.19 having initially climbed +13%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set for a weaker open this morning with ASX200 futures down -51 points or -0.71% to 7,107 at the close of trading on Saturday morning. The index slumped -2.16% on Friday in broad-based selling with 93% of stocks lower and all sectors negative, led by technology -4.47%, real estate -3.37% and communications -2.52%. The index suffered the worst day since February over concerns that aggressive tightening by central banks will stall economic growth. Ahead for the week, investors will focus on the final reading of retail sales for March on Tuesday expected to come in at +1.6% for the month compared with +1.8% prior, followed by the Westpac consumer confidence survey for May on Wednesday. The Australian dollar weakened -0.51% on Friday to 0.7070 while the yield on 10-year government bonds rose +8 basis points to +3.47%.
Oil prices rose on Friday with both WTI and Brent crude +1.39% and +1.34% higher at US$109.77 and US$112.39 a barrel. Metals were lower for the week with aluminium down -6.25%, as was copper -2.91%, lead -1.06%, nickel -8.80%, tin -1.76% and zinc -8.81%. Iron ore futures in Singapore fell -5.03% on Friday and are a further -2.04% weaker this morning at US$135.10. Gold gained +0.35% to US$1,883.81 while silver declined -0.67% to US$22.36 and Bitcoin weakened -1.04% as is a further -5.13% weaker over the weekend at US$34,225.
Economic data:
- China Balance of Trade (MoM Apr) 13:00
- Fed Bostic Speech 22:45
- U.S. Wholesale Inventories (MoM Mar) 00:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
