The week appeared to be one in which bad news for the economy was considered good news for stock prices, given the interest rate implications. On Tuesday, the S&P 500 Index marked its most substantial single-day increase since June. This surge followed news that job openings unexpectedly fell by 338,000 in July and hit their lowest level since March 2001.
US non-farm payrolls expanded by 187,000, modestly surpassing the consensus estimate of a 170,000 increase. However, a cumulative downward revision of 110,000 for the preceding two months suggested a notable deceleration in hiring momentum. In August, the unemployment rate rose to 3.8% from July’s 3.5%, primarily due to a substantial estimated addition of 736,000 to the labour force. Surprisingly, according to the household survey, employment increased by 222,000 despite a pronounced uptick in the unemployment rate.
In response to cooling labour market conditions, financial markets continued to anticipate a pause in the Federal Reserve’s interest rate hikes. The market’s pricing of potential rate cuts was extended to May 2024, with an increased likelihood of a cut in March following the release of softer US jobs data.
Across the board, major US large-cap stock indexes reported weekly gains, with the NASDAQ and S&P 500 leading the way, up by 3.2% and 2.5%, respectively, while the Dow Jones gained 1.4%. The Europe 600 Index closed 1.49% higher, buoyed by hopes of an impending peak in interest rates, supported by estimates indicating that the core inflation rate in the eurozone remained steady at 5.3% in August, slightly lower than July’s figure. In the UK, the FTSE 100 recorded a positive return of 1.79%. Japan’s stock markets also saw gains during the week, with the Nikkei 225 Index rising by 3.4%. Chinese stocks followed suit, boosted by a series of government stimulus measures aimed at revitalizing the economy.
After surging above 5.00% the previous week, the yield on the 2-year US Treasury bond retreated. Diminishing medium-term expectations for rate hikes triggered a rally in 2-year notes, bringing their yield to approximately 4.89% by the end of the week, down from the previous week’s closing yield of 5.06%, which had nearly reached a year-to-date high set in early March. In the UK, softer economic data pushed the yield on UK 10-year sovereign bonds to near one-month lows, ending the week at 4.4%. Sovereign bond yields across the European Union also saw declines throughout the week. Meanwhile, UK house prices experienced a notable 5.3% decline in August, marking the largest drop since July 2009.
In the realm of commodities, oil prices surged during the week, with WTI prices climbing by 7.6%, driven by positive stimulus announcements from China. Additionally, gold posted a 1.5% positive return.
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