Friday’s payrolls report appeared to have something for everyone, an unemployment rate that fell to a new multi-year low of 3.5%, which suggests that the US labour market still remains solid, however rather puzzlingly, wages growth fell sharply, from 3.2% to 2.9%, while the headline jobs number came in at 130k.
If you’re a dove then the decline in wages is likely to be a concern, supporting a view that muted inflation pressure suggests that more rate cuts are needed, however if you’re of a more hawkish disposition then the slide in the unemployment rate supports a wait and see approach. This week we’ll get to see if there are any signs that the splits on the Federal Reserve’s voting committee are showing any signs of narrowing. Kansas City Fed President Esther George, one of two FOMC members who has dissented to the two recent rate cuts, showed no signs of any change in view in comments made at the end of last week. Fed chair Jay Powell also gave no indication that he was concerned about the health of the US economy in separate comments
This helps explain why US markets reacted so calmly, with equity markets rebounding back from their lowest levels in over a month, helping to reduce last week’s losses. Even markets in Europe enjoyed a welcome recovery, though they still finished the week sharply lower, thus concluding one of the worst weeks for European stocks this year.
The beginning of this week’s trading has started in a fairly subdued fashion ahead of this week’s restart of US, China trade talks. Hopes around these talks appear to already being tempered by reports that China is unwilling to offer too much in the way of concessions on issues like Chinese industrial policy, or government subsidies. This would suggest that the talks are likely to be focussed on a much more narrow set of issues.
On the data front there is little in the way of respite for the German economy which saw factory orders decline 0.6% in August, a much worse number than had been expected, equating to a 6.7% decline on an annualised basis.
On the company’s front, reports in the media over the weekend appear to suggest that the UK’s biggest bank, HSBC (LON:HSBA) is about to embark on further deep cuts to its work force in the weeks and months ahead.
The story in the FT, if confirmed would add to the 4,700 job losses already announced earlier this year and could well be announced later this month when the bank announces its latest Q3 numbers on the 28th October. Amongst a lot of the major investment bank HSBC has been one of the few to be reluctant to wield the axe as aggressively as some of its rivals, probably due to the fact that its scale and profitability has meant that it hasn’t felt the need to be as aggressive, especially in Europe where its cost base is much higher.
Previous CEO John Flint’s demise appears to have come about as a result of his reluctance to take the necessary steps to cut back in Europe, however new acting CEO Noel Quinn doesn’t appear to have the same qualms and could well start to wield the axe across Europe to the tune of up to 10,000 jobs, as HSBC looks to focus more on its more lucrative Asia operations.
We’ve also had a profits warning from SIG (LON:SHI), a company which provides specialist building products including thermal insulation, dry linings, flooring and ceiling products, across Europe, citing weak trading conditions in the UK and Germany.
The company said that it expected pre-tax profits to come in at around £40m instead of the previous £80m, largely as a result of its decision to offload two of its smaller divisions in order to reduce the level of its debts. The company said it was looking to sell its Air Handling Division to France Air to €222.7m with £130m of the proceeds being used to reduce the level of its total debt, which has more than doubled in the last 12 months.
It also announced that it was selling its Building Solutions division to Kingspan for £37.5m.
The profit warning from SIG (LON:SHI) has seen shares in Travis Perkins (LON:TPK), Howdens Joinery and Kingfisher (LON:KGF) also come under pressure.
The pound has come under modest pressure on increasing pessimism that the UK and EU will be able to bridge their differences when it comes to a Brexit breakthrough this week.
US markets look set to open lower after their strong finish to Friday trading as investors pare back their expectations from this week’s US, China trade talks, on reports that China is looking to narrow the scope of the discussions, when talks resume later this week.
Dow Jones is expected to open 105 points lower at 26,468
S&P500 is expected to open 11 points lower at 2,941
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