U.S. equities reversed initial gains on Friday to finish lower as the August jobs report suggests the economy appears more than strong enough to cope with higher rates.
For the month of August, 315k jobs were added modestly higher than the consensus of +300k although eased from the +526k in July. The unemployment rate unexpectedly rose to +3.7% against expectations to remain unchanged at +3.5% as the participation rate moved higher to 62.4% from 62.1% previously. Meanwhile, wage growth was modestly below forecasts although remained strong enough to keep the Federal Reserve on its tightening path. Ahead for the week economic data is fairly light, investors will look to the final reading of August PMI’s reports on Tuesday as well as the ISM non-manufacturing PMI report as well as several speeches by Federal Reserve officials.
The S&P500 declined -1.07% on Friday weighed by technology -1.29%, health care -1.44%, and communications -1.86% while energy was the only sector higher, up +1.81% on higher oil prices. The Dow Jones also declined -1.07%, along with the Nasdaq Composite -1.31% and Russell 2000 -0.72% with the VIX little changed at 25.47. In the wake of the employment report, Treasury yields declined with the 2-year rate down -11.2 basis points to 3.391% along with the 10 and 30-year rates by -6.3 and -1.6 basis points respectively. Traders pared back expectations of a +0.75% rate increase at the Fed’s September 21st meeting although continue to suggest the probability of more than 50%.
European equities finished higher on Friday with the Euro Stoxx 600 up +2.04% along with the DAX +3.33%, CAC +2.21%, and FTSE100 +1.86%. According to Swissquote’s Ipek Ozkardeskaya, gains were supported by the U.S. payroll report suggesting that there was “nothing to further revive the Fed hawks. That’s one piece of good news for the markets”. Ahead for this week, investors will look to the release of the final reading of PMI reports for August today as well as Eurozone retail sales for the 12 months to July forecast to decline at a more modest pace of -0.7% from -3.7% previously. Wednesday will bring the release of the final reading of Q2 GDP for the Eurozone expected to show the economy expanded at +0.6% over the quarter while the ECB’s rate decision will be in focus on Thursday with traders pricing in a +0.50% rate increase.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX is set to open lower this morning with ASX200 futures down -16 points or -0.24% to 6,792. The index declined -0.25% in late trading on Friday with a -1.76% drop in materials offsetting gains in financials +0.75% and health care +0.49%. Weighing on sentiment on Friday was news China has locked down 21 million people in the city of Chendu as COVID-19 infections rise, clouding the outlook for the economic recovery. Major miners declined following the news from China with BHP down -2.05% along with RIO -2.52% and FMG -2.49%. In economic data this week, Monday will bring the release of the final PMI reports for August as well as the final reading of retail sales for the month of July. In focus on Tuesday is the RBA’s latest policy decision with traders suggesting a more likely probability of a +0.50% increase over +0.25%. Wednesday will see GDP data for Q2 expected to show the economy expanded at +1.2% over the quarter and +3.8% over the year with a speech by RBA Governor Lowe on Thursday also of interest.
Oil prices finished higher on Friday with both WTI and Brent crude up +0.30% and +0.71% respectively to US$86.87 and US$93.02 a barrel. The outlook for oil remains mixed from both a supply and demand perspective as continued rate increases are expected to weigh on demand while the continued roll off of U.S. strategic oil reserves and the return of sanctioned Iranian oil offset by expectations that OPEC+ may cut output to bridge the disconnect between physical and paper markets. Iron ore futures in Singapore finished -0.98% lower on Friday and are little changed this morning at US$94.50 with copper edging +0.21% higher on Friday. Gold rose +0.86% to US$1,712.19 an oz on Friday along with silver +1.31% to US$18.04 while Bitcoin was -0.51% lower and is a further -0.40% weaker over the weekend at US$19,900.
Economic data:
- Australian PMI Final (MoM Aug) 09:00
- Australian Retail Sales (MoM Jul) 11:30
- Chinese PMI (MoM Aug) 11:45
- Eurozone PMI Final (MoM Aug) 18:00
- Eurozone Retail Sales (YoY Jul) 19:00
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.
