Week 40 in brief
A strong September US jobs report sent Wall Street stocks tumbling on Friday as investors were concerned the Fed would continue with aggressive hikes on interest rates. Even though job growth was slower than the previous month, the employment rate was also lower than expected at 3.5% versus the forecast of 3.7%, marking a 50-year low.
In the Jobs report, nonfarm payrolls increased by 263,000 for the month, compared with the Dow Jones estimate of 275,000. This was the first deceleration since April 2021, as August payroll figures came in at a 315,000 increase.
How did the major US indices perform on Friday:
- The S&P 500 lost 103.90 points, or 2.77%, to end at 3,640.62 points,
- while the Nasdaq Composite lost 418.49 points, or 3.78%, to 10,654.83.
- The Dow Jones Industrial Average fell 620.95 points, or 2.07%, to 29,305.99.
What drove the US market
- Wall Street stocks started off the week strong after some investors squinted hard enough at some weaker-than-expected data on the economy to suggest the Fed may take it easier on rate hikes.
- Friday’s jobs report however turned stocks movement to the negative as it killed any hopes for a “pivot” by the Fed, a pattern that has been repeated several times this year.
- Technology stocks continue to be the hardest hit by raised interest rates as they’re considered are the riskiest investments. On Friday, Microsoft slumped 5.2%, and Amazon fell 5%. Advanced Micro Devices fell 13.5% after it warned revenue for its latest quarter is likely to come in at $5.6 billion, below its prior forecasted range of $6.5 billion to $6.9 billion. AMD said the market for personal computers weakened significantly during the quarter, hurting its sales.
- Wages have been an issue for the fed, as Friday’s report showed that average wages for workers rose 5% last month from a year earlier. That’s a slowdown from August’s 5.2% growth but still potentially high enough to concern the Fed. The Fed is particularly concerned about a situation where higher workers’ wages lead companies to hike prices for their products more, which leads to higher inflation and even more demands from workers for higher wages.
How did the European markets perform?
- European equities tracked Wall Street sharply lower in the wake of the jobs report.
- The Pan-European STOXX 600 index was down 1.2% to 391.67 points, logging a third straight session of declines. The STOXX index posted weekly gains of nearly 1%, as expectations that major central banks may tame their aggressive policy approach had briefly boosted equities in the first few sessions of the week.
- The UK’s FTSE 100 index decreased 0.09% to 6,991.09 points, while Germany’s DAX 30 was off 1.59% to 12,273 points.
- France’s CAC 40 index fell 1.17% to 5,866.94 points and in Italy, the FTSE MIB 30 index declined 1.13% to 20,901.56 points.
- The jobs report followed a meeting by European Central Bank on Thursday that had fanned fears of large interest rate hikes to contain surging inflation in the eurozone.
- In individual stock performance, Credit Suisse rose 5.4% after the lender said it would buy back up to 3 billion Swiss francs ($3 billion) of senior debt securities, making a show of strength as it seeks to reassure investors after a tumultuous week.
- Renault jumped 4.9% after ODDO BHF upgraded the French carmaker’s stock.
How did Asian markets perform?
- Asian stocks were slightly lower on Friday following the US jobs report, but closed the week mostly higher after a week of muted Trading volumes, thanks to a week-long holiday in China.
- A series of sessions that ended higher were sponsored by a recovery from the worst monthly performance since the COVID-19 outbreak in March 2020.
- Australia’s S&P/ASX 200 index was set to rise nearly 5% this week, its best weekly performance in over two years after the Reserve Bank hiked rates by less than expected, sending a dovish signal to markets.
- Japan’s Nikkei 225 index fell 0.7% and was up 4.5% this week, as improving service sector activity and better-than-expected industrial production and retail sales data pointed to some resilience in the Japanese economy.
- India’s blue-chip Nifty 50 index fell 0.4%, with sentiment toward the country worsening after the rupee hit a record low on Friday.
Bonds and Commodities
- The jobs report sent US treasury yields higher, with the benchmark 10-year Treasury adding 3 basis points to settle at 3.861%. It has seen a volatile couple of weeks, falling below 3.6% briefly earlier in the week after surpassing the 4% mark last week.
- The yield on the policy-sensitive 2-year Treasury rose 5 basis points to 4.299%. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as a reliable indicator of a recession when inverted, was at a negative 41.6 basis points, up from the negative 57.85 hit on September 22.
- Prices of crude oil have been rising in the week to reach a five-week high with the announcement of supply cuts from OPEC+
- Brent crude closed up 3.7% to $97.91 a barrel and U.S. crude prices were up 4.73% at $92.63 a barrel.
- Elsewhere, gold took a hit against the surging dollar, with spot prices falling 0.9% to $1,695.52 an ounce.
- On Friday, the dollar continued with its long upside streak as it reversed early losses against the Japanese yen and was last up 0.2% at 145.42 yen.
- The euro fell against the dollar, extending losses after the U.S. jobs report, and was last down 0.6% at $0.9735.
- The U.S. dollar index which measures the greenback against a basket of currencies was last up 0.6% and hit its highest in a week. The index is up about 18% for the year so far.
- Sterling was down 0.9% at $1.1060, having fallen 1.4% overnight. It jumped earlier this week after the British government reversed a planned cut to the highest rate of income tax.
- The dollar also gained against China’s offshore yuan Friday and was last up 0.7% at 7.1313.
Corporate earnings season kicks off next week with several big banks and financial firms, including JPMorgan Chase, Morgan Stanley, BlackRock, and Citigroup, set to report earnings. Other major firms such as PepsiCo, TSMC, Delta Air Lines, and UnitedHealth are also scheduled to release results. Key reports on consumer and producer inflation, retail sales, and consumer confidence will become available next week. Meeting minutes from the FOMC’s latest policy meeting, held September 20-21, will be released Wednesday.
Next week could also be a big one for cryptocurrency markets, as regulatory changes may be on the horizon. The G20’s Financial Stability Board (FSB) is expected to unveil plans to regulate the crypto and decentralized finance (DeFi) industries at the coming G20 meeting in Washington on Wednesday and Thursday. This week, the U.S. Financial Stability Oversight Council (FSOC) called for greater oversight of cryptocurrency markets, particularly more volatile stablecoins.