Hi Folks, no doubt the strong Job Numbers hitting on Friday put an interesting twist on upcoming rate hikes and market expectations. Get me take here in this week’s market round-up.
WEEKLY SOUND BITES:
Major indexes finished mixed for the week as a much stronger-than-expected jobs report revived investor concerns that the Federal Reserve will need to maintain an aggressive pace of interest rate hikes to tamp down high inflation.
Friday’s payrolls data showed employers added 528,000 nonfarm jobs in July, more than double consensus expectations of around 250,000, and May and June estimates were revised up by a combined 28,000. Following the strong July gains, total nonfarm employment in the U.S. has now returned to its pre-pandemic level. The unemployment rate fell to 3.5%, matching its February 2020 level. Job gains were widespread, with leisure and hospitality, professional and business services, and health care showing notable hiring. Service sector growth unexpectedly accelerated last month, based on Institute for Supply Management (ISM) survey data. Meanwhile, ISM’s reading of manufacturing sector growth came in above expectations but fell to its lowest level since June 2020.
Markets had interpreted Fed Chair Jerome “Power Ranger Boom Boom” Powell’s comments following the central bank’s July 26-27 policy meeting in a dovish light and priced in more limited policy tightening as a result. However, the strong payroll numbers seemed to indicate that the Fed has significant room to raise interest rates. The strong payroll report and hawkish messaging from Fed officials helped drive U.S. Treasury yields higher over the week, outweighing downward pressure from rising U.S.-China tensions.
The BoE raised its key interest rate by 50 basis points (0.50 percentage point) to 1.75%, the biggest increase in 27 years. It also projected that inflation would hit 13.3% by October because of surging energy prices. The number of unemployed people rose in the eurozone for the first time in 14 months in June while the jobless rate remained unchanged at a record low of 6.6%, but the number of job seekers increased by 25,000 to just under 11 million. The eurozone manufacturing sector contracted last month, with final data in July purchasing managers’ surveys conducted by S&P Global signaling the sharpest decline in production since the initial wave of COVID-19 lockdowns in spring 2020.
And in Japan, while we’ve seen wages rising higher, growth has been muted—the BoJ believes that wage increases are necessary for achieving its 2% inflation target. So, a government panel agreed on a record hike in the average minimum wage for all workers for fiscal year 2022. The latest composite purchasing managers’ index (PMI) data signaled that private sector output broadly stagnated in July.
In China, we saw the official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July from 50.2 in June, below the 50-point mark that separates contraction from growth and the lowest in three months. The non-manufacturing business activity index fell to 53.8 from 54.7 in June and the composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1. Foreign investors continued to cut holdings in Chinese bonds in July and dumped equities for the first time in four months.
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