Markets were focused on macro data yesterday, anticipating both the US Federal Reserve minutes and details of revisions to US job creation numbers over the last year from the Bureau of Labour Statistics. The job creation statistics were downgraded by more than 800,000 roles, and though that might sound like a daunting number it was well within market expectations. The view seemed to be that there are seasonal issues, and discrepancies in the way the data is collected.
That said, the number of job vacancies in the US, which as of June stood at 7.88m, have been trending back towards pre-Covid levels, suggesting that the jobs market has been cooling. The strength of the jobs market, and more specifically the ability of workers to demand higher wages, has been a key input in the battle against inflation in the US.
The level of inflation in the US economy is a major factor in the Fed’s thinking on interest rates. The latest set of Federal Open Market Committee (FOMC) minutes, which covered its July meeting, showed that several members of the panel were happy to cut rates last month, but overall the committee erred on the side of caution. There is no FOMC meeting in August, but traders currently believe that the central bank are likely to lower rates in September. A growing contingent of Fed Funds traders are also positioning themselves for an outsize 0.5% cut at the 18 September meeting.
Against that backdrop, US equities enjoyed another positive session, with the S&P 500 rising by 0.42%. The consumer discretionary and materials sectors were the best performers, rising by 1.18% and 1.15% respectively. Both sectors are thought to be beneficiaries of lower interest rates.
The price of grocery chain Target jumped by 11.2% as it beat on earnings and raised guidance. The US consumer remained resilient, though focused on value. Department store Macy’s moved in the other direction, falling by as much as 12% as it posted a much bigger loss than the market had been anticipating.
The Nasdaq 100 rallied by 0.53% on the day, narrowly outperforming the S&P 500 information technology sector which rose by 0.46%. Clothing retailer Ross Stores was the Nasdaq’s biggest gainer, up by 4.23% after being upgraded by JPMorgan earlier in the week.
Intriguingly, the equal-weight S&P 500 has been outperforming the cap-weighted version of the index over the last month, up by 1.57% compared to a 1.01% gain in the more widely followed version of the index, perhaps suggesting that mega cap techs have taken a breather. Nvidia is due to report earnings after the market close on 28 August.
European equities also enjoyed a positive session, though there were some dissenters. The Swiss SMI fell by 0.1%, as did Sweden’s OMX, while the broad-based STOXX 600 index was down by 0.7%.
Pernod Ricard shrugged off its recent loses and rallied by 3% yesterday The drinks maker has been realigning its portfolio and announced plans to triple its revenues in India over the next decade by introducing two new premium whiskies to the sub-continent. Alcoholic beverage companies are struggling with demographic changes in developed markets where many young people drink infrequently or not at all.
Commodities have opened flat in Europe with gold down by 0.17%, WTI by 0.11% and copper by 0.2%. There are few movers of note on the foreign exchanges. USD/JPY slipped by 0.2% to trade at ¥145.42, while US 10-year treasury bond yields are unchanged at 3.802%. Equities are trading in a narrow range either side of the gain line ahead of PMI data release.