According to the U.S. Labor Department, non-farm payrolls rose by 528,000 in July. This is a very strong number, more than twice higher than the consensus estimate, suggesting that the economy might not cool down as expected. Stock markets wobbled on the news but ended well off the Friday session lows, shrugging off worries about monetary policy tightening and rising U.S.-China tensions over Taiwan.
The S&P 500 was fractionally higher over the week (+0.36%, -13.03% year-to-date) while the Dow Jones Industrial Average remained 0.13% weaker (-9.73%). By contrast, the Nasdaq Composite jumped +2.15% as big tech traded mostly higher, bringing its YTD performance to -19.10%.
European equities registered small gains this week after largely positive corporate earnings. The MSCI EMU edged up +0.27% (-14.269% YTD), the FTSE 100 gained +0.22% (+0.75% YTD) while the Bank of England hiked interest rates by 50 basis points to stifle inflation (its largest single increase in 27 years), warning of a long-lasting recession from the fourth quarter of 2022.
Asian markets closed mixed. Japan’s Nikkei was up +1.35% (-2.14% for the year) and the Taiwan weighted index managed to finish the week in positive territory (+0.24%) despite hostile threats from China in the wake of Nancy Pelosi’s visit to the self-governing island. On the flip side, the Shanghai Composite slid 0.81% (-11.34% YTD).
Energy on a weak footingThe energy sector fell 6.82% over the week, pressured by the WTI crude price which nosedived below $90/bbl (-9.74%) on demand concerns. As a result, the oil market gave back all the gains prompted by Russia’s invasion of Ukraine.
By contrast, information technology led the pack (+1.95%) following better-than-expected quarterly results (best themes this week: fintech, digital infrastructure and cloud computing). Consumer discretionary stocks also fared well (+1.17%), supported by another jump in Amazon (+4.33%). Communication services were not far behind with Meta Platforms up +5.03%.
U.S. Treasury yields bounced backYields on U.S. Treasury yields rose sharply Friday as traders digested the latest jobs report. Longer-dated bonds came under more subdued pressure. The U.S. 10-year Treasury yield surged 17 basis points from 2.66% to 2.83% while the 2-year Treasury note, which is very sensitive to monetary policy expectations, settled at 3.23% (i.e. +33 basis points week-over-week and +40 basis points higher than the 10-year yield). In Germany, the 10-year Bund yield followed suit, gaining 14 basis points from 0.82% to 0.96%.
Rising yields hit investment grade corporate bonds whose prices fell 0.90% in the U.S. and 0.56% in Europe, snapping a six-week winning streak. The surge in Treasury yields did not send any ripples across high yield bond markets (up 1.08% in Europe and virtually unchanged in the U.S.). Emerging debt was up for the third straight week (+1.07%).
Elsewhere, gold continued to show positive momentum. The spot price rose +0.54% at $1,775.50/Oz. In the crypto space, the world's largest cryptocurrency by market capitalization (BTC USD) slipped towards the $23k threshold.