Please see this week’s weekly market commentary from Brooks Macdonald providing their commentary on global markets:
- US equities surged last week, supported by a fresh adoption of the ‘soft landing’ narrative
- The US employment saw a surprise increase in the unemployment rate while wage growth slowed
- Chinese stimulus helped support the region’s equity market as policymakers seek to boost economic growth
US equities surged last week, supported by a fresh adoption of the ‘soft landing’ narrative
The US equity market climbed around 2.5% last week, its strongest weekly performance since June. European equities also rose but lagged behind the US rally as US mega-cap technology stocks supercharged the US market return. US bond yields fell last week on the back of weaker-than-expected economic data however this weekly fall masks a degree of volatility last Friday.
The US employment saw a surprise increase in the unemployment rate while wage growth slowed
While the headline number of new jobs slightly beat market expectations, the last two months of data were revised lower, more than offsetting the small beat. Recent nonfarm payroll releases have been consistently downgraded in future months which casts doubt on the true strength of the August numbers. One of the significant changes for this report was a pickup in the headline unemployment rate which moved to 3.8% versus expectations, and the previous reading, of just 3.5%. The driver of this was a large increase in the number of individuals looking for work in August. In terms of the all-important wage growth numbers, average hourly earnings fell more than expected, declining to 0.2% month-on-month compared to 0.4% the previous month.
In aggregate, the employment report showed a deceleration in labour market tightness which is welcome news for the Federal Reserve. That said, whether this softening gains momentum or not will play a large role in determining whether the US economy undergoes a soft or hard landing. Adding to the mixed data that the market has to contend with, the US Institute for Supply Management (ISM) manufacturing survey was stronger than market expectations even though the sector remains in contraction. Of more concern will be the pick-up in the prices paid sub-component which could mean that goods disinflation, a central driver of the recent falls in US consumer price index (CPI), may be moderating somewhat.
Chinese stimulus helped support the region’s equity market as policymakers seek to boost economic growth
This week will start slowly with the US on holiday on Monday. This week the focus will be on any hint of further Chinese stimulus with investors responding positively to the recent efforts to stimulate economic growth. We will also see the release of the US ISM services survey as well as hear from the Reserve Bank of Australia where the central bank is expected to pause its interest rate hikes.
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Andrew Lloyd DipPFS
05/09/2023