Hey Folks, a very interesting week for the markets. Where to from here? I lay it out for you in this week’s round-up.
Market Sound Bites:
Markets are not happy in this shortened holiday week. The S&P suffered its worst weekly drop in 18 months, as worries over an economic slowdown appeared to weigh on sentiment and the worse start to Sept since 1946. Historically, September has been one of the worst months for stocks, averaging a 0.7% loss since 1950, while the S&P 500 has declined 4.9%, 9.3%, 4.8%, and 3.9% over the last four years. Trading volumes also picked up as investors returned to the office following the summer vacation season. To be sure, the beige book prepared for the coming FOMC meeting had a distinctly downbeat tone. Nine of the Fed districts reported weaker conditions, with only three saying that “economic activity grew slightly.” So, the US Economy is slowing down but not dramatically so.
The week’s heavy economic calendar generally surprised on the downside, raising fears that the Federal Reserve had waited too long to ease monetary policy. Wednesday’s tally of July job openings came as an even larger disappointment, with the number of unfilled positions falling to its lowest level (7.67 million) since January 2021. Friday’s official payrolls report from the Labor Department painted a more complicated picture of the health of the labor market. Overall, employers added 142,000 jobs in August, below consensus estimates of around 160,000, while July’s gain was revised down to 89,000, marking the lowest level since December 2020. The household survey revealed that the unemployment rate had ticked lower, however, from 4.3% to 4.2%. Average hourly earnings also rose 0.4%, better than expected.
Friday’s jobs data appeared to sharply reduce expectations that the Fed would cut rates by a full 50 basis points. The benchmark 10-year U.S. Treasury note appeared to fall back in response to the jobs report, hitting its lowest level since May 2023.
ECB indicated they saw a “clear case” for an interest rate cut in September but regarded the potential for another one in October was “quite unlikely.” German manufacturing orders in July unexpectedly increased 2.9% sequentially after seasonal and calendar adjustments, following an upward revision of June’s result to 4.6%. However, industrial production in Germany fell much more than expected, by 2.4% sequentially, having risen 1.7% in the prior month. Weakness in the automotive industry was a big part of this drop.
Japan’s real (inflation-adjusted) wages grew 0.4% year on year in July, boosted by pay hikes and summer bonuses. The reading marked the second consecutive monthly gain and was seen as bolstering the case for the BoJ to hike rates further this year. Conversely, household spending rose only 0.1% year on year in July, remaining sluggish despite solid income growth.
In China, the value of new home sales by the country’s top 100 developers fell 26.8% in August year on year, accelerating from a 19.7% drop in July. The continued slide in new home prices signaled the waning impact of the government’s real estate rescue package in May and raised speculation of further support measures from Beijing to put a floor beneath the property downturn. China’s official manufacturing purchasing managers’ index (PMI) slipped to a lower-than-expected 49.1 in August from 49.4 in July as production and new order declines deepened.
Enjoy this week’s round up.
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