U.S. equities pared larger declines on Friday, finishing lower after the November jobs report added to the case for the Federal Reserve to continue tightening, albeit at a more modest pace.
United States
US equities were mixed on Friday after the release of US jobs report. The S&P 500 closed -0.12% lower, weighed down by energy, information technology and utilities which fell by -0.60%, -0.55% and -0.47% respectively. The materials sector was the biggest winner, closing 1.1% higher, while industrials gained 0.62%. The Dow closed marginally higher by 0.1% while the Nasdaq slipped -0.18% and the Russell 2000 edged up 0.59%. Emmanuel Cau, strategist at Barclays Plc wrote in a note, “Consensus is that recession is coming but equities cannot bottom before it starts, inflation won’t fall quickly so central banks can’t blink, China reopening will be a messy process, and Europe remains tricky”. Adding to concerns of a recession, the following chart by Jeffrey Kleintop, Investment Strategist at Charles Schwab shows over 80% of yield curve spreads are inverted, which has never failed to predict a recession.
In economic data, US unemployment rate was steady at 3.7%. The non-farm payrolls report released on Friday revealed the US labour market added 263k jobs in November, 63k higher than forecast, but below last month’s 284k. The relatively strong report is in contrast to the household survey which suggests a much softer labour market, and there is often a several-month lag between tightening policy and the labour market softening. However, most concerning for the Federal Reserve is average hourly earnings which rose 5.1% over the 12 months, above forecasts of 4.6% consistent with inflation remaining above the 2% target for now. The report did little to sway traders between on the Fed Funds Rate peaking modestly below 5% in the middle of 2023 and continuing to price cuts into the latter half of the year. The 10-year yield finished -1.9 basis points lower on Friday while the 2-year yield was 4.2 basis points higher with the US dollar index -0.17% lower at 104.55.
Europe
European equities were modestly lower on Friday with The Euro STOXX 600 edging -0.15% lower, with energy falling by -1.06%, utilities by -0.54% and information technology by -0.48%. The CAC slipped -0.17%, the DAX rose slightly by 0.27% while the FTSE fell by -0.26%. The European Union is expected announce a cap on Russian oil exports today, with the results of the policy still unclear. Analysts at Goldman Sachs are cautious on their views of the region, “While Europe does not look extremely expensive, we would remain cautious. Indeed, we are in a recession, risks remain elevated and rates are rising.”
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is expected to open higher this morning, with ASX futures up 19 points or 0.26% to 7,334. The ASX fell by -0.72% lower on Friday to close at 7301.5. The biggest laggards were real estate, energy and financials, declining by -2.63%, -2.45% and -1.02%. Healthcare climbed 1.09% and communication services rose 0.82%. Santos dropped -3.8%, Woodside Energy -2.6%, New Hope Company and Beach Energy -2.4%, Whitehaven Coal -1.5%, while Warrego Energy rose 8.5%. Coronado Global Resources lost -4.3% after announcing declines in production, while Transurban fell -1% despite reaffirming earnings for 2023. Mining companies fared better, St. Barbara jumped 10.4%, Silver Lake Resources firmed 7%, Newcrest Mining 2.1%, Northern Star Resources and Evolution Mining 0.7%. The yield on the 10-year Australian treasury note was 3.39% while the local currency was down by -0.3% to 0.67.
Commodities
In commodities, over the weekend OPEC+ held output steady as it responds to market volatility noting China’s relaxation of COVID rules creates demand uncertainty along with the EU’s ban of most seaborne imports from Russia on Monday. Oil prices fell on Friday with WTI and Brent Crude both falling -1.53% and -1.51% to $79.98 and $89.57 respectively. Precious metals prices were mixed, with spot gold sliding -0.30% to $1,797.63 while spot silver rose +1.69% to $23.14. Industrial metal prices rose, with SGX Iron ore adding 3.95% to close at $105.92 on Friday and is a further 0.59% higher this morning, while copper rose 0.89%. Meanwhile the price of Bitcoin rose by 0.8% to $ 17,112.
Economic Data:
- Australian S&P Global Services PMI (Nov) 09:00
- Eurogroup Meeting 11:00
- Chinese Caixin Composite PMI (Nov) 12:45
- ECB President Lagarde Speech 12:45
- Eurozone S&P Global Services PMI Final (Nov) 20:00
- Eurozone Retail Sales YoY (Oct) 21:00
- US S&P Global Composite PMI Final (Nov) 01:45
- US ISM Non-Manufacturing PMI (Nov) 02:00
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.
