A “Now Hiring” sign at an Advance Auto Parts store on Tuesday, August 15, 2023 in San Leandro, California, US.
David Paul Morris | Bloomberg | Getty Images
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job creation slows down
US job growth slowed to 177,000 in August, according to payroll company ADP. That’s below economists’ expectation of 200,000 – which is already well below July’s revised 371,000. This is a sign that the effects of higher interest rates are starting to be felt, leading traders to expect the Federal Reserve to hold off on hikes.
Markets have rebounded
US stocks rose on Wednesday on weaker-than-expected economic data. The S&P 500 is on a four-day winning streak that helped it claw back some of its August losses. In Europe, the regional Stoxx 600 index closed 0.2% lower. Separately, Germany reported a 13.2% year-on-year decline in import prices for July, while Spain’s flash inflation reading for August came in at 2.6%, in line with expectations.
Big bond loss for BOE
According to Deutsche Bank, the Bank of England is facing huge losses on its bond purchases. The damage is primarily caused by rapidly rising interest rates, which push up bond yields and, conversely, push bond prices down. In late July, the central bank estimated it would need to prevent losses of £150 billion ($189 billion) on its asset purchase facility to the UK Treasury.
Salesforce’s earnings jump
Shares of Salesforce jumped up to 6% in extended trading after the company reported better-than-expected second-quarter earnings. Revenue rose 11% from a year earlier to $8.6 billion, while net income rose from $68 million to $1.27 billion. Salesforce also lifted its revenue forecast for the year. The company’s cost-cutting and layoffs really paid off.
[PRO] Bitcoin ETF is not a fixed deal
Crypto asset manager Grayscale has won its case against the Securities and Exchange Commission, which refused to allow the company to convert its bitcoin trust into an ETF. Investors are hoping that the decision will open the way for bitcoin ETFs from companies such as BlackRock, Fidelity and Invesco. While this is undoubtedly a fundamental moment for bitcoin, analysts caution that it is still too early to celebrate.
Bad news is good news again for the market.
Last week, markets were gripped by fears that interest rates would remain high – or go even higher – in the face of a very strong economy and stubborn inflation. (Recall that the 10-year Treasury yield, which generally reflects rate expectations, hit a 16-year high last week.)
On Wednesday those concerns were somewhat dispelled.
New data showed that economic growth, while still warm enough to suggest a soft landing, was not as sharp as previously thought. US GDP growth in the second quarter shrank from 2.4% to 2.1% on an annual basis.
Besides, job creation in August was lower than expected. According to the ADP, in another encouraging sign that inflation may be easing, wage growth has slowed for workers, whether they changed jobs or remained in their current positions.
“This month’s numbers are in line with the pace of job creation before the pandemic,” Nella Richardson, ADP’s chief economist, said in a press release. “After two years of extraordinary gains linked to the recovery, we are moving towards more sustainable growth in wages and employment as the economic effects of the pandemic subside.”
Overall, there are expectations that the Federal Reserve may loosen its grip on monetary policy on the back of weaker-than-expected economic data. The market became happy with this news.
The S&P 500 rose 0.38%. This may seem like a small figure, but it is statistically significant for a few reasons: one, it gives the index a four-day winning streak; two, it helped the index close above 4,500, breaking a key psychological barrier; Third, it helped narrow August’s losses to around 1.6%, which was lower than the intraday low of 5.53% on August 18. The Dow Jones Industrial Average climbed 0.11% and the Nasdaq Composite climbed 0.54%.
For tomorrow, keep an eye on the Personal Consumption Expenditure Index, which measures how much consumers spent in July. If inflation data comes in soft, that completes the trifecta of data — economic growth, jobs and inflation — that the Fed wants to see slow. Then the market can probably take a sigh of relief for the time being.