The sullen September start continued as investors moved further away from risk assets, prompted by mounting fears on the state of the US economy.
The latest and highly anticipated non-farms payroll report came in weaker than expected, although the news did not result in the damage wrought in the previous month. Jobs growth of 142000 came in against an expected 163000 and also contained downward revisions to earlier readings, although the drop in unemployment to 4,2% was as expected. More recent economic data has also shown signs of weakness, prompting recessionary fears and leading to a reduction in risk appetite. However, the non-farms number was neither conclusive nor enough to move the dial, such that the consensus is still skewed to a rate reduction of 0.25% next week from the Federal Reserve, as opposed to a more aggressive 0.5% cut.
Even so, sentiment has weakened ahead of the rate decision and mega cap technology stocks bore the brunt of the latest exodus. The Nasdaq fell by 2.6% and the S&P500 by 1.7% on Friday, with the Magnificent Seven at the eye of the storm with drops of between 3% and 4% for the likes of Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), Meta Platforms and Nvidia (NASDAQ:NVDA). The next test comes on Wednesday this week with the release of the Consumer Price Index, where headline inflation is expected to have fallen from 2.9% to 2.6% which, all things being equal, should cement any Fed decision to ease monetary policy.
In the meantime, the main indices remain ahead for the year although significantly off previous levels which saw each test record highs. The Dow Jones is now up by 7%, the Nasdaq by 11.2% and the benchmark S&P 500 by 13.4%.
Asian markets were in similarly downbeat mood overnight, exacerbated by some local economic news which failed to lift the gloom. In China, producer prices fell by an annual 1.8% as compared to the 1.4% expected, with tepid goods price growth of just 0.2% further confirming the subdued consumer demand which is currently dragging on the economy.
In Japan, the main Nikkei 225 index also drifted lower, initially hit by markdowns in tech stocks following the US experience. The mood did not improve after the release of GDP numbers which pointed to annualised growth of 2.9% in the second quarter, below expectations, and with some strength in the yen following haven flows from other parts of the globe weighing on the country’s important raft of exporters.
Against this backdrop, UK markets bucked the trend and somewhat surprisingly opened on the front foot. For the premier index, early strength came from delayed buying interest in Berkeley Group following its trading update on Friday, while Entain (LON:ENT) rose to the top of the leaderboard after posting its own trading statement. The betting group reported better than expected growth in Net Gaming Revenues in the latest quarter, which continued its recent upbeat trading momentum. The spike in the price comes as something of a relief given that the shares have fallen by 45% over the last year, largely driven by regulatory threat and emerging competition in the US.
There was also some tentative buying interest in the banks, which have been under some pressure in recent days given growing speculation that the new government may be planning a windfall tax swoop. However, initial gains were not quite enough to reverse Fridays declines, although the FTSE100 remains ahead by 6.4% in the year to date. May’s record highs are now around 2.7% away, and further progress could be hamstrung amid what is currently a cautious investing environment.