After last week’s volatility, equity markets managed to finish on a positive note as of 12pm London Time, as investors keenly anticipate US jobs data later today. Markets were buoyed by improved data released yesterday by the US labour department which saw 385,000 initial unemployment claims, lower than the 399,000 claims from the previous week. However, what will be key are the non-farm payrolls, which are expected to have added 870,000 jobs, up from last month’s 850,000 figure. Unemployment is also expected to drop from 5.9% to 5.7%.
As of 12pm London time the US main index finished higher by 0.77%, followed by stronger performance in Europe and the UK, where the markets rose 1.28% and 1.31% respectively. The Japanese stock market also rose, up by 1.49%. Meanwhile, shares in China recovered somewhat after last week’s sell off, which was triggered by the government regulatory crackdown on education and technology companies. The Chinese market regulator called for calm once again this week, in addition to urging closer co-operation with Washington over Chinese listings on Wall Street. The Hong Kong index finished up by 0.84%, whilst the mainland Shanghai index rose 1.79% over the week.
Mixed US economic data
Meanwhile, away from the US employment numbers, investors digested a raft of other data releases, as market participants continue to gauge the health of the US economic recovery. US Manufacturing Purchasing Managers Index (PMI), a survey of economic activity, showed a reading of 59.5 for July. Despite the reading being above 50, indicating an expansion in activity, it is lower than the previous month’s reading of 60.6. Services data also moderated with the Services PMI reading 59.9 down from 64.6 in June. Whilst the recovery remains intact, amongst the survey companies have cited worsening labour and materials shortages, prompting some investor concerns over the fragility of the economic recovery. US factory orders fared better, with new orders for goods rising 1.5% month on month above the estimated 1% rise.
Bank of England leaves interest rates on hold
Although the monetary policy committee (MPC) decided to leave interest rates at 0.1%, the committee acknowledged that some “modest tightening” might be needed in the next two years. The MPC remains adamant that inflation is still “transitory”, however, given their forecast of inflation peaking at 4%, the central bank remains open to normalising monetary policy to stave off potential higher inflation should economic growth continue to run higher above expectations.
US Treasury yields jump after policymaker remarks
10-year US Treasuries originally rallied at the start of the week, as US PMI data disappointed and investors sought safe-haven assets. However, this was short lived and the bond yield, which moves inversely to the bond price, started to rise after hawkish comments from Federal Reserve (Fed) vice-chair Richard Clarida. In a speech, Clarida said the central bank should prepare for interest rate rises at the start of 2023 as well as an adjustment to bond purchases, provided the recovery from the pandemic remains intact. The 10-year US treasury yield jumped higher on these comments and finished the week trading at 1.26% as of 12pm London time. Elsewhere, the 10-year UK gilt and German bund yield traded flat over the week at 0.55% and -0.47% respectively.
Oil prices fall on inventory data
Brent crude oil faced a volatile week falling over 5%, its worst week since March. The fall in price was precipitated by concerns over the spread of the coronavirus Delta variant, weighing on global energy demand. Meanwhile, oversupply in the US also led to price falls. The Energy Information Administration (EIA) announced that crude inventories rose by 3.6 million barrels over the past week. The commodity finished trading at $72.15 per barrel as of 12pm London time.