Week 35 in brief
Stocks in the US fell on Friday to end their third straight weekly decline. Despite a small rally on Friday morning, as investors were briefly comforted by the jobs report which showed the economy added 315,000 jobs for the month, stocks fell later in the day to end the day and week in losses. All major US indices ended the day in the red zone.
The jobs report also indicated that the unemployment rate rose to 3.7%, but investors still believe the Fed is yet to slow down on interest rates. Wall Street analysts still believe the central bank will enforce a 75-basis-point hike on the oncoming September meeting.
How did the major indices perform:
- The Dow Jones Industrial Average erased a 370-point gain and finished the session lower by 337.98 points, or about 1.1%, at 31,318.44.
- The S&P 500 fell roughly 1.1% to 3,924.26, its lowest close since July.
- The Nasdaq Composite declined 1.3% to 11,630.86, recording its first six-day losing streak since 2019.
For the week:
- The Dow lost roughly 3%
- The S&P 500 lost 3.3%
- The Nasdaq fell 4.2%.
What drove the US market
- The biggest market mover for the week was Friday’s jobs report, which was solid and failed to ease fears that the Federal Reserve would keep aggressively hiking interest rates to fight inflation.
- The US labor department indicated that there was a slight uptick in the unemployment rate and a slower pace of jobs growth, to 315,000 in August from 526,000 the previous month.
- The decline was further accelerated on Friday afternoon after Gazprom, Russia’s state-owned energy group, said it would close the Nord Stream gas pipeline indefinitely, thanks to a ‘mechanical issue’, a move that will probably exacerbate a squeeze on Europe’s energy supplies.
- Kohl’s Shares of the retailer jumped 7.5% following a report that private equity firm Oak Street Real Estate Capital has made an offer to acquire as much as $2 billion of the retailer’s property.
- Defensive stocks also did well in the week, with three stocks in the S&P 500 shooting to to 52-week highs.Cardinal Health ticked up about 0.7% to hit its highest level since March 2018.AES Corp added 3.1% to reach its highest mark since June 2021. Constellation Energy which was spun off from Exelon in January, is up 0.7% and trading at an all-time high. The list is defensive, with a health care stock and two utility names shown. That could suggest that investors aren’t confident enough to jump back into riskier stocks even after a solid August jobs report.
How did the European markets perform?
- On Friday, Pan-European benchmark index, the STOXX 600, rallied 2% off Thursday’s six-week lows but clocked a weekly decline of 2%, while Britain’s FTSE jumped 1.9% in the day.
- Fresh lockdowns in China had earlier fueled concerns about global growth, and high energy costs as a result of the war in Ukraine are weighing on Europe.
- Investors sharply raised bets this week on a large 75 bps rate hike from the European Central Bank at its meeting next Thursday following hawkish commentary from policymakers and another record high inflation print in August.
- Money markets priced in an 80% chance of a 75 bps hike, compared with less than 50% last Friday.
- Credit Suisse rose 6.1% following reports that Switzerland’s second-biggest bank is considering cutting around 5,000 jobs in a cost-reduction drive.
- Ryanair firmed 2.0% as the Irish low-cost carrier saw a record number of passengers in August for the fourth straight month.
- Philips slumped to its lowest level since July 2012 after a subsidiary of the Dutch medical device maker agreed to pay more than $24 million to resolve alleged false claims over respiratory-related medical equipment, the U.S. Justice Department said.
- Lacklustre August sales by Volvo Cars pushed shares of the Swedish automaker down 1.9%.
- Miners fell the most, shedding more than 6% this week as metals’ prices dropped on renewed concerns that China’s zero-tolerance COVID-19 policy and rate hikes would dent demand for commodities.
How did Asian markets perform?
- MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6%, heading for its worst weekly performance since mid-June with a tumble of 3.6%.
- The Nikkei ended 0.04% lower at 27,650.84 and posted a 3.4% weekly decline, its worst loss since mid-June.
- The broader Topix fell 0.27% to 1,930.17, after touching a six-week low of 1,926.05 earlier in the session. The index lost 2.5% for this week.
- Chinese blue chips dropped 0.5% on Friday.
- The southwestern Chinese metropolis of Chengdu on Thursday announced a lockdown of its 21.2 million residents, while the technology hub of Shenzhen also rolled out new social distancing rules as more Chinese cities tried to battle recurring COVID-19 outbreaks.
Bonds and Commodities
- In the US and Eurozone bond markets, where yields have shot higher in recent weeks on fears of rising inflation and interest rates, saw 10-year bond yields decline sharply across the regions. The fall was due to release of the jobs report by the US labour department
- The two-year US. Treasury yield, which typically moves in step with interest rate expectations, was down 11.8 basis points at 3.404% after hitting 15-year highs the day before.
- The yield on 10-year Treasury notes was down 6.6 basis points to 3.199%, one day after hitting two-month intraday highs, while the yield on the 30-year Treasury bond was down 2.7 basis points to 3.347%.
- Germany’s 10-year bond yield, for instance was 6 basis points (bps) lower at 1.51%, having risen to 1.63% on Thursday, the highest since end-June.
- Italian 10-year yields were down 12 bps on the day at 3.83% , having pushed above 4% on Thursday for the first time since June.
- Brent crude futures rose 1% to $93.3 a barrel while U.S. West Texas Intermediate (WTI) crude futures were up by 0.6% at $87.14 a barrel.
- A softer dollar boosted spot gold , which rose 0.9% to $1,710.00 per ounce.
- On Friday, the U.S. currency was down 0.064% at 109.52 , but was still up 0.6% for the week and set for its third-straight weekly gain.
- The euro was up 0.21%, retracing some of the previous day’s losses against the dollar, but sitting below parity at $0.9965.
- Sterling dipped 0.24% versus the dollar to $1.1516, on track to end the week down around 1.9%.
- Against the rate-sensitive Japanese yen, the dollar was up 0.04% at 140.125 yen. The dollar surged above 140 yen for the first time since 1998 on Thursday.
Next week will begin with a holiday, as U.S. markets close for Labor Day on Monday. Several companies will report next week, including Gamestop, Asana, DocuSign, and Kroger, among others. Apple will host its annual product launch event on Wednesday, where it’s expected to unveil a new series of the iPhone 14, with bigger screens and faster chips, along with a new series of Apple Watches and an update to the AirPods Pro. Investors can also expect the latest PMI survey readings on Tuesday, followed by the release of the Fed’s Beige Book on Wednesday. On Thursday, European Central Bank (ECB) policymakers will conduct their monetary policy meeting, with officials widely expected to raise interest rates.