US markets returned from Independence Day on a high, as the latest jobs report added fuel to the fire of an interest rate reduction in September.
While the headline number came in above expectations of 190000 at 206000, investors chose to concentrate on other details which support the rate cut case. The unemployment rate ticked higher to 4.1% against expectations that it would remain unchanged at 4% and, of equal significance was the fact that there were also downward revisions to prior months. Treasury yields fell on the news, while the market is now pricing in a 77% chance of the first rate cut in September, up from around 65% just a week ago.
With another inflation print due this week, the case for a cut could strengthen further. In the meantime, recent economic data has revealed a slowing economy which could change the Fed’s focus in an effort to quell inflation without tipping the economy into recessionary territory. This week will also herald the beginning of the latest earning season, with updates from banks such as Citigroup, JP Morgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) of particular significance. While guidance comments could give something of a read across to the UK banks who report around the end of the month, of more imminent importance will be the state of the consumer and attitudes to lending, set against debt default levels. In addition, for the banks as a whole there will also be some scrutiny of whether the levels of deal making in the relevant investment bank arms has led to a boost in revenues.
The general level of rising optimism was enough to push the technology-exposed indices to new highs once more, with the S&P500 and the Nasdaq now having risen by 16.7% and 22.3% respectively in the year to date. The Dow Jones has also consolidated its recent gains to stand ahead by 4.5% so far this year.
Asian markets were less sanguine overnight, with local issues tending to dominate sentiment. The Nikkei edged marginally higher, despite data which showed a fall in real wages for the 26th consecutive month. Coupled with rising inflation and a falling yen which has depressed consumer sentiment, the economy on the ground is rather weaker than the benchmark index, which has benefited from the weaker currency as exports have become cheaper.
In China, the real estate sector was not at its usual place in the forefront of investor attention, as shipping shares fell markedly with Cosco Shipping falling by over 7%. The news will neither temper the more recent pessimistic view of investors on the region, nor does it give any immediate indication of an economic recovery which investors have been pining for this year.
UK markets were similarly downbeat, with the two major indices limping to losses in early trade. The updates from China did little to lift the mood, reflecting in some weakness on the likes of Burberry, Standard Chartered (LON:STAN) and HSBC (LON:HSBA). The oil majors also drifted on a lower oil price, shaving some of the gains from the premier index which remains ahead by 5.9% so far this year.
The FTSE250 also dipped as the new government attempts to propel economic growth in the UK, with announcements on its strategy expected to follow over the next few weeks. Despite a dip which leaves the index up by 5.5% in the year to date, one bright spot came in the form of Ocado (LON:OCDO), which announced plans for a third customer fulfilment centre in Japan. The shares rose by almost 5% on the news, which is of some small consolation to a share price which has declined by more than 50% this year, resulting in its recent relegation from the FTSE100. Elsewhere, Britvic (LON:BVIC) shares spiked by around 5% as Carlsberg (CSE:CARLa) revealed its third and lates acquisition price for the soft drinks maker at a level of £13.15 which includes a special dividend of 25p per share. However, the market reaction was muddied by an accompanying trading statement from Britvic which showed some revenue weakness. As such, the shares did not rise to the obvious bid level, potentially leaving the door ajar for further developments on the proposed acquisition.