FIRE THE MESSENGER
The combination of a weak non-farm payroll report and additional tariffs acted in tandem to drag markets dramatically lower at the end of last week. Meanwhile US treasury yields moved sharply down as investors moved to safe haven assets in expectation of increased rate cuts before year end. Investors were further unnerved by the firing of the head of the Bureau of Labour Statistics (BLS) chief on the back of the jobs report.
The non-farm payroll report showed fewer than expected jobs created for July, big revisions downwards to the May and June numbers and signs of dramatically slower job creation outside of healthcare & government services. The Trump administration also announced additional tariffs for a host of countries who had not yet signed up to a deal.
Markets turned around yesterday, repairing much of Fridays' damage as investors parsed the detail of the labour report against a backdrop of solid earnings. Still to come this week are a Chinese trade update, a Bank of England rate decision and economic outlook reports for the EU and UK.
The US non-farm payrolls report was the big news last week. Job creation was lower than expected (though not terrible) at 73K created vs 107K expected with healthcare and government the only sources of hiring. Unemployment also ticked up from 4.1% to 4.2% in line with expectations. The big news was the revisions made to the May and June numbers - 258K jobs previously recorded as created were removed from the figures.
On the back of the weak report, the Trump administration announced the firing of the Chief of the Bureau of Labour Statistics (BLS) leading to concerns over the future impartiality of economic data releases. A Federal reserve Governor also announced her resignation last week and yesterday, President Trump announced that he would be naming replacements in the coming days.
Last week also saw the announcement of a raft of tariffs for countries who had not yet sought a trade deal with the US. Standouts were a 39% rate for Switzerland, a potential increase on the current 25% rate for India (in retaliation to their continued purchases of Russian energy & arms) and a 40% additional rate for Brazil bringing the total to 50% (seemingly a response to their continued prosecution case against former President Bolsonaro)
Global equities fell sharply on Friday following the Jobs report. The S&P 500 ended last week down 2.3% whilst in Europe, the Stoxx 600 was off by 2.6%. On Monday, markets rebounded somewhat as investors moved on from the gloomy jobs report.
The fallout from the jobs report helped drop US bond yields (bond yields fall as bond prices rise), with the 10-year Treasury yield dropping as much as 20bps at one point to 4.19% as expectations of a Fed rate cut increased. In Europe it was a similar with the German 10yr bund falling by up to 8bps at one point to 2.64%.
- Tue 5th Global PMI reports, EU - PPI inflation rate data, US - International trade data
- Wed 6th EU- Retail trade data
- Thu 7th US - Q2 labour productivity & costs • UK - BoE rate decision
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.