US unemployment remains at 3.7%
The US economy added 164,000 new jobs in July, data from the US Department of Labor showed. Analysts, on average, projected a gain of 165,000 jobs. Meanwhile, the US unemployment rate stood at 3.7% last month, unchanged from June, vs. 3.6% expected. Thus, the latest nonfarm payrolls data came in almost in line with the median consensus. Before the report, some experts were concerned that, if the data turned out better than expected, the Fed could have all the more reason for a patient stance, whereas investors (just like Donald Trump) would like the Fed to continue monetary policy easing. The number of private sector jobs rose by 148,000, following a 179,000 increase a month earlier, and the number of government workers expanded by 16,000. The manufacturing sector reported an increase by 16,000, while the retail sector saw a decrease by 4,000 jobs. Construction reported gains of 4,000 jobs, business services added 38,000 jobs, education and healthcare boosted employment by 66,000 jobs, financial services – by 18,000 jobs. Average hourly wage edged down to 34.3 hours from 34.4 hours in June, while average hourly earnings rose 0.3% m-o-m and 3.2% y-o-y to USD 27.98. The participation rate stood at 63% in July, up from 62.9% in the previous month.
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Eurozone retail sales leap in June
Eurozone retail sales jumped 1.1% m-o-m in June, Eurostat reported. This is the highest monthly pace since November 2017. June retail sales climbed 2.6% y-o-y, while analysts on average anticipated an increase of just 0.3% in 1Q and 1.3% in 2Q. On balance, June retail sales grew 1.2% m-o-m and 2.8% y-o-y in 28 EU member states. Among EU countries which released data, retail sales jumped the most in Croatia (+6.8%), Germany (+3.5%) and Poland (+2.8%). Retail sales declined the most in Portugal (-0.9%), Ireland (-0.8%) and Slovenia (-0.5%). On an annual basis, the highest rate of growth was registered in Croatia (+7.4%), Lithuania and Romania (+5.7%), and in Malta (+5.6%). A contraction was recorded in Slovakia (-0.4%).
US CCI slightly up in July
In line with the final data from the University of Michigan, the Consumer Sentiment Index grew from 98.2 in June to 98.4 in July. The index’s preliminary reading was also 98.4, while analysts on average expected its revision to 98.5. The Current Economic Conditions Index decreased from 111.9 in June to 110.7, while the six-month Expectations Index rose from 89.3 to 90.5, the highest mark since last September. US citizens’ inflation expectations for the medium term (12 months) decreased from 2.7% to 2.6%, while the longer-term forecast (five to ten years) grew from 2.3% to 2.5%. Americans’ financial expectations for the next 12 months grew from 134 to 137, the highest level since 2004
US: escalating US-China trade conflict sends equities into tailspin
A spate of patchy US macro data came out stateside on Friday, August 2. With every of them being important, market participants were mainly focused on those data points which are key to assess the current condition and prospects of the US economy, namely a set of US Department of Labor numbers in which non-farm payrolls took center stage.
Monthly gains in this major sector, a trend seen for nine years already, were assessed on average at 165,000 in July, or nearly in line with 164,000 as registered by official authorities, while experts nearly managed to predict real numbers for the first time in a long period. However, non-farm payrolls were revised downward, removing 41,000 from total job gains in June and May. Private businesses added 148,000 to payrolls in July vs. 165,000 expected and after the past month’s reading was revised up from 179,000 to 191,000. As part of a trend seen over the past few months (except for May), government bodies again raised hiring of federal and regional employees by 16,000.
The US unemployment rate expectedly remained unchanged at 3.7%. The Labor Force Participation Rate, which tracks the portion of the workforce in total population, grew from 62.9% in June to 63% in July. U6, an alternative unemployment gauge which takes into account those who stopped looking for a job or have to work part-time, fell from 7.2% a month ago to 7% in July.
Despite expectations of a repeat performance, the average workweek decreased from 34.4 hours in June to 34.3 hours. Average hourly earnings ticked up 0.3% to USD 27.98, or jumped 3.2% y-o-y, exceeding the prior month reading (+3.1%).
Later another key indicator – the final reading of the University of Michigan Consumer Sentiment Index – came out, rising marginally to 98.4 (in line with the preliminary reading) in July from 98.2 in the previous month and slightly short of 98.5 finally forecast.
Diverse data on factory orders were released as well. US factory orders increased by 0.6% in June vs. 0.8% expected after the May contraction was revised from 0.7% to 1.3%. Durable goods orders (final) rose by 1.9% vs. an preliminary estimate of 2% after falling 1.3% in the previous month.
A big batch of macro data was squarely in line with expectations and did not have any substantial impact on trading. A major factor predetermining a downturn was a decision voiced by President Donald Trump to impose a 10% tariff on USD 300 bn of Chinese products, which have not yet been tariffed, starting September 1. These threats immediately sparked retaliatory measures in China and pledges to pay back in kind by taking the respective countermeasures against US businesses and their products. Given close integration of the world’s two biggest economies, the expanding trade war could at best only slow down global economic growth and could trigger another crisis under the worst-case scenario. Under the influence of these alarming expectations, all benchmarks experienced a session-long pullback and closed deep in the red, chalking up solid weekly losses as well.
Recapping the indices, the Dow Jones Industrial Average retreated 0.37% to 26,485.01, down 2.6% w-o-w, the S&P 500 lost 0.73% to 2,932.05, a weekly decrease of 3.1%, and the Nasdaq Composite gave up 1.32% to 8,004.07, down 3.9% on the week
In the blue-chip universe, most liquid names (20 out of 30) landed in the red, with the decliners led by technology giant Cisco Systems (-3.9%), Dow (-2.7%) and global athletic apparel retailer Nike (-2.4%). The top outperformers included flagship airplane maker Boeing (+1.6%), the world’s widest restaurant chain McDonald’s (+1.5%), and pharmaceutical firm Merck (+0.9%).
Among the top outperformers, Pinterest, a social media web and mobile application company, soared 18.6% after reporting higher-than-forecast quarterly earnings and raising FY financial guidance.
Real estate company Redfin added 11% to its market cap as 2Q total revenue substantially exceeded the median consensus.
Network security and antivirus software developer Fortinet spiked 8.9% after reporting much stronger 2Q financials than most Wall Street analysts projected.
On the minus side, OLED technology supplier Universal Display gave up 1.6% as it failed to boost 2Q sales in China.
Leading engineering construction company Fluor crashed 26.7% due to heavy quarterly losses because it spent too much on the execution of new gas-related projects.
In commodities, December COMEX gold jumped USD 25.10, or 1.8%, to USD 1,457.50/oz.
Gold climbed to the May 2013 high as the dollar weakened sharply against a basket of rival currencies, first and foremost vs. the Swiss franc and the Japanese yen. On balance, December gold futures in the most active trading position, which replaced August contracts, grew by 1.8% w-o-w.
September NYMEX WTI rose by USD 1.71, or 3.2%, to USD 55.66/bbl.
Crude futures partly offset Thursday’s heavy losses (-7.9%) because Friday showed another reduction (for the fifth week in a row) in the US rig count, according to the latest Baker Hughes data. However, oil fell 1% w-o-w.
From a technical standpoint, the daily chart shows that the S&P 500 has broken out of a rising wedge to the downside, while the nearest support level is 2,912 and the resistance level is 2,980. Stochastic lines are on the sell side but will soon reach oversold territory, so downside potential is already limited.
Europe: US-China trade dispute weighs on investor sentiment
Key European stock indices landed in negative territory on Friday, August 2, as investors became concerned again about the US-China trade conflict. To remind, Donald Trump said on Thursday that he intended to impose a 10% tariff on an additional list of Chinese imports valued at USD 300 bn.
Even positive macro data out of the Eurozone failed to improve investor sentiment. Specifically, the region’s retail sales increased 1.1% m-o-m and 2.6% y-o-y in June, beating expectations of 0.2% m-o-m and 1.3% y-o-y.
Recapping the benchmarks, the UK’s FTSE 100 retreated 2.34%, the French CAC 40 fell 3.57%, and the German DAX dropped 3.11%. The regional barometer STXE 600 closed 2.46% lower at 378.15.
European semiconductor makers took a hit amid uncertainty surrounding a potential US-China trade deal. In particular, Dialog Semiconductor and Infineon Technologies plunged 4.5% and 6.3%.
Europe’s largest insurer Allianz shed 3.5% despite an increase in quarterly net income.
Ferrari and Royal Bank of Scotland Group also released strong quarterly earnings,which failed to support the share price. As a result, Ferrari gave up 4.3%, while Royal Bank of Scotland Group pulled back 6.5%.
The list of outperformers included International Consolidated Airlines Group, which soared 8.4% after reporting a 20% increase in Q2 pre-tax profit.
Key European stock indices have been in decline during the first half of Monday, August 5, amid investor concerns over the US-China trade dispute, with mining companies underperforming. Moreover, traders parse incoming macro data and corporate earnings, including those from HSBC Holdings.
By 9:09 GMT, the UK’s FTSE 100 retreated 2.06%, the German DAX dipped 1.52%, and the French CAC 40 fell 2.09%. The regional barometer STXE 600 was off 1.94% at 370.83.
German DAX has broken out of a rising band to the downside at 12,250. The support level is now 11,610. Stochastic lines are sell-friendly but have already reached oversold territory, so we expect the index to stop falling.
Asia: benchmarks remain under pressure
Asian stock indices closed predominantly in negative territory on Monday, August 5, amid uncertainty surrounding the US-China trade war. To remind, Donald Trump said he intends to impose a 10% tariff on Chinese imports valued at USD 300 mn. In response, Chinese authorities devalued the yuan.
Key macro data included China’s Caixin services PMI, which came in at 51.6 in July vs. 52.0 in the previous month. South Korea’s foreign exchange reserves totaled USD 403.11 bn in July compared to USD 403.07 bn a month earlier.
The Japanese Nikkei 225 dipped 1.74%, the Chinese Shanghai Composite retreated 1.62%, Hong Kong’s Hang Seng fell 2.85%, the South Korean KOSPI slid 2.56%, and the Australian S&P/ASX 200 closed 1.90% lower.
On the S&P/ASX 200, Resolute Mining and Ardent Leisure Group outperformed the broader market, adding 4.3% and 3.4%, respectively. On the other side of the spectrum, Appen Limited and Wisetech Global Limited tumbled 10.61% and 8.06%.
The Nikkei 225 gainers were led by Toyobo and Olympus, which soared 5.01% and 4.34%, respectively. Among the decliners, Kobe Steel and Yahoo Japan sank 15.02% and 12.81%.
Japanese exporters came under pressure as the yen appreciated. Specifically, Nissan Motor, Daikin and Panasonic gave up over 3%.
Steelmaker Kobe Steel tanked 15% after slashing full-year profit guidance by 67%.
Yahoo Japan plummeted 12.8% after reporting a 24% decrease in operating profit, missing the consensus forecast.
In the Australian banking sector, Commonwealth Bank, Westpac, National Bank of Australia, and Australia & New Zealand Banking ended in the red.
Australian mining giant Rio Tinto gave up 2.37% amid declining iron ore prices.
Oil has resumed its descent on Monday as the US-China trade conflict again escalated. Over the weekend, President Donald Trump claimed that Washington could impose additional tariffs on Chinese exports if there is no headway in the trade talks. When asked by a journalist, he noted that this could be a substantial increase to much higher levels. According to news agency Bloomberg, the Chinese government has already ordered Chinese companies to suspend the purchase of agricultural products in the US. Investors are concerned that all these developments could lead to a further global economic slowdown and influence global crude demand negatively.
Market participants continue to monitor Middle East developments. The media wired that Iranian troops seized another oil tanker in the Persian Gulf on July 31. According to TV channel Al Arabiya, the tanker operates under the Iraqi flag and it allegedly smuggled fuel. Meanwhile, US Secretary of State Mike Pompeo is absolutely sure that Washington will manage to form an international coalition to guard commercial vessels near Iranian and Yemen coastlines.
Non-ferrous metals are range-bound on the LME, while gold advanced to USD 1,470/oz, the highest level since 2013.
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