A person enters a new cookie store next to a “Help Wanted” sign in New York City on January 12, 2022.
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This report comes from today’s CNBC Daily Open, our new newsletter for international markets. CNBC Daily Open gives investors everything they need to know, no matter where they are. Do you like what you see? Here you can sign up.
moderation of employment growth
Nonfarm payrolls in the US rose by 187,000 in July. That’s less than the Dow Jones estimate of 200k but slightly more than June’s downgraded job growth of 185k. Unemployment fell 10 basis points to 3.5%, the lowest level since late 1969. All in all, it was a pretty good report for both workers and the Federal Reserve.
Bad week for US stocks
Major US indices ended Friday lower, giving the S&P 500 and Nasdaq Composite their worst week since March. Wall Street’s poor performance weighed on Asia-Pacific markets on Monday. China’s Shanghai Composite fell 0.75% as traders braced for tomorrow’s trade data for the country and Wednesday’s inflation figures. Japan’s Nikkei 225 managed a gain of 0.08%.
Rising oil prices
Oil prices hit a four-month high on Monday. October Brent futures traded at around $86.13 a barrel and September US West Texas intermediate futures traded at around $82.70 a barrel, both the highest levels since mid-April. Prices were pushed higher by an attack on a Russian oil export hub and Saudi Arabia’s extension of oil production cuts.
Tear off this tariff
Australia wants China to remove all barriers to trade between the two countries, the country’s Trade Minister Don Farrell told CNBC on Monday. Farrell’s comments come after Beijing lifted its tariffs on Australian barley imports effective August 5. The move shows how bilateral tensions have eased since leaders from both countries met at the G-20 summit in Bali last November.
[PRO] Positives on a China downgrade
Morgan Stanley downgraded the MSCI China, an index that tracks a range of large and mid-cap stocks in mainland China. The bank remains cautious about the country’s growth prospects, despite the promise of further government support. Still, the bank added two stocks to its focus list, suggesting there are still bullish moments in individual companies.
The US economy has enjoyed an uninterrupted winning streak.
Job growth was weaker than expected in July, which the Federal Reserve is aiming to bring down inflation. But it wasn’t so low that it would cause problems for workers or the economy.
“Overall, this is still not the labor market picture we would expect if the economy were in danger of slowing dramatically near-term, although there are undoubtedly signs of a slowdown,” said Rick Rieder, chief investment officer of Global Fixed Income at wealth management giant BlackRock.
In fact, the US economy is looking so healthy — a slowing but strong job market, lower inflation readings and stronger-than-expected growth — that Wall Street is changing its mind about the recession. JPMorgan is the latest bank to abandon its recession forecast. The country’s largest bank follows Bank of America, which called for a “soft landing, no recession,” and Goldman Sachs, which cut its probability of a recession from 25% to 20%.
Still, markets collapsed on Friday. The S&P 500 fell 0.53% and the Nasdaq Composite slipped 0.35%. This is the fourth loss in a row for both indices. The Dow Jones Industrial Average fell 0.36%. Additionally, all indices ended the week lower. The S&P and Nasdaq slipped about 2.3% and 2.9%, respectively, their worst weeks since March. The Dow fell 1.1%.
The discrepancy between good economic news and a bad week in markets reminds us that while the two are closely related, they are not the same thing.
Economic data measure and report what has already happened. Markets, on the other hand, are alive, driven by emotions and involve bets on the future. What does that tell us? That traders are not sure the S&P can continue its rally even if the inflation data to be released this week is weaker than expected. As Steve Sosnick, chief strategist at Interactive Brokers, put it, “The risk mentality is changing a bit.”
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