Global shares ease after US jobs data cools some economic optimism; oil retreats from 2-year highs

A now hiring sign seen outside of the Vintage Knolls retirement and assisted living community.
A now hiring sign seen outside of the Vintage Knolls retirement and assisted living community.

  • US stock futures dipped as investors weighed up last week’s employment report ahead of inflation data this week.
  • Oil pulled back from two-year highs, under pressure from concern about an influx of Iranian supply
  • Natural resources stocks were among the biggest losers in Europe, despite strong Chinese commodity imports.
  • See more stories on Insider’s business page.

Global shares eased on Monday, as investors digested a slightly disappointing read of the US labor market and prepared for key inflation data later this week, while oil pulled back from two-year highs.

Friday’s employment report showed the US economy created 559,000 jobs in May, below the 650,000 economists had expected, while April’s number was revised up marginally to 278,000.

The report didn’t offer traders the confirmation they had hoped for of a robust recovery in hiring. At the same time, it dampened the prospect that the Federal Reserve might have to quickly rein in some of its support for the economy, which allowed stocks to end last week on a positive note.

Futures on the S&P 500, Nasdaq 100 and Dow Jones fell between 0.1 and 0.3%, indicating a slightly softer start to trade later on.

“What the May jobs report does tell us is that despite the high levels of vacancies being reported, there is a reluctance on the part of US workers to return to work,” CMC Markets chief strategist Michael Hewson said.

“This flies in the face of optimism that the economic reopening would prompt a rehiring blitz, making it much less likely that the Fed will look at an early tapering of asset purchases,” he said.

Treasury Secretary Janet Yellen told Bloomberg in an interview on Sunday that if the US economy ended up with slightly higher rates and inflation, this would be “a plus”.

“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” she told Bloomberg.

The next major data point will be US consumer inflation on Thursday, which is expected to show prices accelerated by 4.7% in May, following April’s 4.2% increase.

The Fed has repeatedly said it is willing to tolerate a sharper rise in consumer prices, which it believes will be short-lived. But investors are highly sensitive to any hint from economic data that might suggest an abrupt change in course by the central bank.

The dollar index was up 0.2% on the day, buoyed largely by gains versus sterling and the euro, which were both down by around 0.1% against the greenback. Yields on the 10-year Treasury note, which can act as a gauge of investor confidence, rose 2 basis points to 1.577%, indicating a degree of caution.

Overnight in Asia, Chinese trade data showed the country’s imports rose at their fastest rate in a decade. The world’s biggest commodity consumer overlooked higher raw material prices, although its crude intake slowed and exports undershot expectations. This had little impact on the major indices. The Shanghai Composite ended up 0.2%, while Tokyo’s Nikkei rose 0.3% and Seoul’s KOSPI closed 0.2% higher.

“What is clear is that the value of both imports and exports is a major contributor due to sky-rocketing raw materials prices, and that in volume terms, the evidence for a commodity supercycle emerging is thus far wholly unconvincing,” Marc Ostwald, chief global economist for ADM Investor Services, said.

Oil prices pulled back from last week’s two-year highs after the Chinese trade data, as traders weighed up the market’s ability to absorb a potential supply increase from Iran, which is in talks with global powers over its nuclear activity. Overall, demand is expected to accelerate over the course of the year, although outbreaks of COVID-19 in the likes of India have tempered some of the optimism.

Brent crude futures were last down 0.8% at $71.34 a barrel, having touched a high of $72.17 last week, while WTI futures were down 0.7% at $69.12 a barrel.

Turning to Europe, gains in the benchmark indices were restricted by declines in the mining and resources sector. Shares in Anglo American fell nearly 3%, while copper producer Fresnillo dropped 1.9%, and commodity trader Glencore lost 1.6%. French oil major Total shed 1.3%, making it one of the biggest losers on the STOXX 50 index, which slipped 0.1%. London’s FTSE 100 edged up 0.1%. Meanwhile, the mid-cap FTSE 250 rose 0.2%, shrugging off a 15% loss in the shares of office-space provider IWG, which dropped 15% after the company issued a profit warning for 2021.

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US futures and the dollar rise ahead of what traders expect to be a bumper employment report

Stock market
  • US stock futures and the dollar edged up ahead of key March payrolls report.
  • Trading was thinned out due to public holidays in most major markets.
  • Economists expect non-farm payrolls to have risen by the most in six months in March.
  • See more stories on Insider’s business page.

US stock futures and the dollar rose on Friday, ahead of a key report on unemployment that will shed further light on the resilience of the economic recovery, although trading volumes were light on account of the swathe of public holidays around the world.

Futures on the S&P 500, the Dow Jones and the Nasdaq 100 rose between 0.1 and 0.4%, suggesting the benchmark indices could see more record highs when they reopen on Monday.

On Thursday, the S&P 500 scorched past 4,000 points for the first time after data showed a sharp rebound in manufacturing activity in March and following President Joe Biden’s unveiling of an infrastructure spending plan worth $2 trillion.

The Bureau of Labor Statistics will publish its nonfarm payrolls report for March on Friday at 8:30 a.m. ET, providing the most detailed look at how hiring fared throughout last month. The backdrop is promising. March had warmer weather, and a faster rate of vaccinations led some states to partially reopen for the first time since the winter’s dire surge in cases. Coronavirus case counts started to swing higher at the end of the month but largely stayed at lower levels.

Democrats’ $1.9 trillion stimulus plan was also approved early last month and unleashed a wave of consumer demand and aid for small businesses. Sentiment gauges surged to one-year highs, and Americans strapped in for a return to pre-pandemic norms.

Consensus estimates suggest March had the strongest payroll gains in six months. Economists surveyed by Bloomberg said they expected nonfarm payrolls to climb by 660,000, which would be nearly double the 379,000 gain seen in February. The unemployment rate is forecast to dip to 6% from 6.2%.

“We believe a vaccine- and reopening-related rebound in labor force participation is likely to start this month, and this could limit the magnitude of the decline in the jobless rate,” Goldman Sachs led by Jay Hatzuis said in a note.

US 10-year Treasury yields held steady around 1.67%, having hit 1.776% last week, their highest in almost 15 months. Bond yields have risen steadily this year, as prices have fallen, in line with a growing conviction among investors that economic recovery is picking up, which will reignite inflation.

The combination of accelerating growth and inflation makes it less attractive to own government bonds.

The dollar meanwhile traded fairly steadily against a basket of major currencies. The dollar index was last down 0.1% on the day, but still holding close to its highest in five months.

“Friday’s highly-anticipated non-farm payrolls report comes out at a bit of an awkward time; for the first time in six years, the April jobs report falls on the Good Friday holiday, meaning that many major markets will be closed,” CityIndex strategist Matt Weller said in a note on Thursday.

“As a result, readers who are at their desks trading the FX or bond markets may see less liquidity than usual and the post-release move may peter out sooner than usual as traders who are watching the markets look to duck out early to enjoy a long holiday weekend,” Weller said.

Bitcoin nudged at $60,000 for the first time in two weeks, as risk appetite pushed investors into more volatile assets. It was last up 1.2% around $59,540, having gained over 8% in the last week.

Read the original article on Business Insider

What you need to know about markets this week: Biden’s spending plans, bitcoin’s blues and an unloved dollar vye with the first Fed meeting and a look at US GDP

Twitter account of the President of the USA Joe Biden is seen displayed on a phone screen
President Biden’s Twitter page. He wasted no time in revealing his spending plans.

  • Joe Biden has been sworn in as the 46th president and wasted no time in unveiling his spending plans.
  • Stocks hit record highs thanks to the prospect of $1.9 trillion in stimulus, but bitcoin has tumbled.
  • Investors will get a first look at 4th quarter US GDP and the Federal Reserve meets for the first time in 2021.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Here are the big themes we’re looking at in the coming week, plus a chart of Big Tech performance around the world.

Joe Biden takes office with a $1.9-trillion bang

With Wednesday’s swearing-in, Biden becomes the 46th president of the United States and has not delayed kicking off his agenda. His proposed $1.9 trillion stimulus package was enough to coax more all-time highs from the global equity markets, with records in the S&P 500, the MSCI Asia ex-Japan index and Europe’s STOXX 600 close to where it was when the pandemic hit last year, despite an alarming rise in cases of COVID-19 and new lockdowns. 

Janet Yellen, Biden’s pick for treasury secretary, is urging the incoming government to spend big and worry about all the debt that will inevitably create later. 

How much the final package is, how those proceeds will be distributed, and what direct impact that will have on growth all remain to be seen. It’s enough, however, for the stock market to be looking past inconvenient economic truths like nearly one million Americans still filing for unemployment benefits a week. A number of other indicators have shown there is resilience to the recovery, with housing starts hitting 14-year highs and manufacturing activity in the mid-Atlantic region picking up to three-month highs.

How did the US economy finish 2020? 

This coming week, the markets will get the first look at US economic growth in the turbulent fourth quarter of 2020. After having contracted by a record 31% in the second quarter, when coronavirus lockdowns were at their harshest, the economy has since largely bounced back. At the last count, it was still 3.5% smaller than it was before the pandemic struck. The forecast is for growth of 4.4%.

The data won’t reflect the impact of the $892 billion aid package that was agreed in late December after months of torturous stand-off in Washington DC. But the prospect of Biden’s $1.9 trillion bazooka has given Wall Street’s big banks cause for optimism. Goldman Sachs raised its forecast for 2021 growth to 6.6% from 6.4% previously, while JPMorgan’s chief global strategist David Kelly believes nominal GDP could expand by 11.4% year-on-year by the end of December.

“Extended, expanded and enhanced unemployment benefits through September should significantly reduce poverty until the pandemic winds down,” Kelly said.

Bitcoin gets the blues

It was a bad week for bitcoin bulls last week. The price fell by 12%, marking its biggest one-week fall since late August. It’s still up nearly 270% in the last 12 months, so it’s not all doom and gloom. But the chorus of voices of those calling for greater scrutiny of cryptocurrencies generally is growing. This past week, Yellen said bitcoin and its ilk were “mainly” used in illegal financing and should be “curtailed.” 

“Cryptocurrencies are a particular concern. I think many are used – at least in a transaction sense – mainly for illicit financing,” she said.

Bitcoin is the most crowded trade at the moment, according to a recent survey of asset managers by Bank of America, and it feels like the most likely direction for the price is lower in the coming week.

“I expect the need to see a further pullback before we see significant bullish momentum build, which would then be a good time for new buyers to enter the market and push prices higher again,” DailyFX analyst Daniela Sabin Hathorn said.

Ditch the dollar and buy everything (and anything)

With another almost $2 trillion in stimulus coming that will boost growth and help keep borrowing rates low, the dollar can’t cut a break. Money managers are sitting on top of their biggest short position in almost a decade and even with the back-up in 10-year Treasury yields above 1.1%, risk appetite and Biden-based euphoria are running high and investors are back to the “buy everything” trade, largely at the dollar’s expense.

Junk bond yields have hit record lows, a basket of unprofitable tech companies has gone parabolic and the sovereign debt of Italy – where the government has just narrowly avoided total meltdown – is more expensive than that of the US. The dollar index is around its highest in six weeks, but just two weeks ago, it was at its lowest since early 2018 and the bears are firmly in control right now.

Can the Fed taper the tantrum?

With the prospect of swifter economic recovery, comes a rise in Treasury yields that for many is reminiscent of 2013’s “Taper Tantrum” – the sharp spike higher in yields that ensued after the Fed indicated it would start to wind down its asset-purchasing program that started with the great financial crisis of 2008/2009.

The Fed’s roster of officials are in pre-meeting blackout until the first monetary policy meeting of the year takes place on Wednesday, followed by a press conference hosted by chair Jerome Powell. But a host of central bankers, including Fed board members Lael Brainard and Richard Clarida, have signaled the Fed isn’t in any rush to wind down its current program, under which it buys $120 billion a month in Treasuries and mortgage-backed securities. 

“Market anticipation of Fed tapering picked up sharply in early 2021, but we think a reduced pace of asset purchases could still be a year away, depending on the evolution of US growth and inflation. This likely means no taper announcement before 2H at the earliest,” Bank of America rate strategists Ben Randol and Ralph Axel Bofa said in a note last week.

Chart of the Week – There’s more to Big Tech than FAANGs

Big Tech is all the rage. The Apples, Amazons, Teslas, and Microsofts are among the best-performing stocks, not just of 2020, but of the past few years. However, valuations are high and the FAANGs aren’t the only way for investors to sink their teeth into this sector. Asia’s tech giants perform just as strongly and, with valuations that are almost half those of their New York-listed counterparts, are far less pricey.

Big Tech index performance since January 2018 rebased to 0
Big Tech index performance since January 2018 rebased to 0

Next week’s events:

Earnings

January 26 Microsoft, J&J, Visa, LVMH, NextEra, Starbucks, 3M

January 27 Apple, Tesla, Facebook, Boeing

January 28 McDonald’s

January 29 Caterpillar

 

Economic data

January 26 UK employment

January 27 Federal Reserve rate decision and press conference

January 28 Euro zone consumer confidence; US GDP – Q4 advanced

January 29 US core PCE

Read the original article on Business Insider

What you need to know on the markets this week: Biden’s spending plans, bitcoin’s blues and an unloved dollar vye with the first Fed meeting and a look at US GDP

Twitter account of the President of the USA Joe Biden is seen displayed on a phone screen
President Biden’s Twitter page. He wasted no time in revealing his spending plans.

  • Joe Biden has been sworn in as the 46th president and wasted no time in unveiling his spending plans.
  • Stocks hit record highs thanks to the prospect of $1.9 trillion in stimulus, but bitcoin has tumbled.
  • Investors will get a first look at 4th quarter US GDP and the Federal Reserve meets for the first time in 2021.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Here are the big themes we’re looking at in the coming week, plus a chart of Big Tech performance around the world.

Joe Biden takes office with a $1.9-trillion bang

With Wednesday’s swearing-in, Biden becomes the 46th president of the United States and has not delayed kicking off his agenda. His proposed $1.9 trillion stimulus package was enough to coax more all-time highs from the global equity markets, with records in the S&P 500, the MSCI Asia ex-Japan index and Europe’s STOXX 600 close to where it was when the pandemic hit last year, despite an alarming rise in cases of COVID-19 and new lockdowns. 

Janet Yellen, Biden’s pick for treasury secretary, is urging the incoming government to spend big and worry about all the debt that will inevitably create later. 

How much the final package is, how those proceeds will be distributed, and what direct impact that will have on growth all remain to be seen. It’s enough, however, for the stock market to be looking past inconvenient economic truths like nearly one million Americans still filing for unemployment benefits a week. A number of other indicators have shown there is resilience to the recovery, with housing starts hitting 14-year highs and manufacturing activity in the mid-Atlantic region picking up to three-month highs.

How did the US economy finish 2020? 

This coming week, the markets will get the first look at US economic growth in the turbulent fourth quarter of 2020. After having contracted by a record 31% in the second quarter, when coronavirus lockdowns were at their harshest, the economy has since largely bounced back. At the last count, it was still 3.5% smaller than it was before the pandemic struck. The forecast is for growth of 4.4%.

The data won’t reflect the impact of the $892 billion aid package that was agreed in late December after months of torturous stand-off in Washington DC. But the prospect of Biden’s $1.9 trillion bazooka has given Wall Street’s big banks cause for optimism. Goldman Sachs raised its forecast for 2021 growth to 6.6% from 6.4% previously, while JPMorgan’s chief global strategist David Kelly believes nominal GDP could expand by 11.4% year-on-year by the end of December.

“Extended, expanded and enhanced unemployment benefits through September should significantly reduce poverty until the pandemic winds down,” Kelly said.

Bitcoin gets the blues

It was a bad week for bitcoin bulls last week. The price fell by 12%, marking its biggest one-week fall since late August. It’s still up nearly 270% in the last 12 months, so it’s not all doom and gloom. But the chorus of voices of those calling for greater scrutiny of cryptocurrencies generally is growing. This past week, Yellen said bitcoin and its ilk were “mainly” used in illegal financing and should be “curtailed.” 

“Cryptocurrencies are a particular concern. I think many are used – at least in a transaction sense – mainly for illicit financing,” she said.

Bitcoin is the most crowded trade at the moment, according to a recent survey of asset managers by Bank of America, and it feels like the most likely direction for the price is lower in the coming week.

“I expect the need to see a further pullback before we see significant bullish momentum build, which would then be a good time for new buyers to enter the market and push prices higher again,” DailyFX analyst Daniela Sabin Hathorn said.

Ditch the dollar and buy everything (and anything)

With another almost $2 trillion in stimulus coming that will boost growth and help keep borrowing rates low, the dollar can’t cut a break. Money managers are sitting on top of their biggest short position in almost a decade and even with the back-up in 10-year Treasury yields above 1.1%, risk appetite and Biden-based euphoria are running high and investors are back to the “buy everything” trade, largely at the dollar’s expense.

Junk bond yields have hit record lows, a basket of unprofitable tech companies has gone parabolic and the sovereign debt of Italy – where the government has just narrowly avoided total meltdown – is more expensive than that of the US. The dollar index is around its highest in six weeks, but just two weeks ago, it was at its lowest since early 2018 and the bears are firmly in control right now.

Can the Fed taper the tantrum?

With the prospect of swifter economic recovery, comes a rise in Treasury yields that for many is reminiscent of 2013’s “Taper Tantrum” – the sharp spike higher in yields that ensued after the Fed indicated it would start to wind down its asset-purchasing program that started with the great financial crisis of 2008/2009.

The Fed’s roster of officials are in pre-meeting blackout until the first monetary policy meeting of the year takes place on Wednesday, followed by a press conference hosted by chair Jerome Powell. But a host of central bankers, including Fed board members Lael Brainard and Richard Clarida, have signaled the Fed isn’t in any rush to wind down its current program, under which it buys $120 billion a month in Treasuries and mortgage-backed securities. 

“Market anticipation of Fed tapering picked up sharply in early 2021, but we think a reduced pace of asset purchases could still be a year away, depending on the evolution of US growth and inflation. This likely means no taper announcement before 2H at the earliest,” Bank of America rate strategists Ben Randol and Ralph Axel Bofa said in a note last week.

Chart of the Week – There’s more to Big Tech than FAANGs

Big Tech is all the rage. The Apples, Amazons, Teslas, and Microsofts are among the best-performing stocks, not just of 2020, but of the past few years. However, valuations are high and the FAANGs aren’t the only way for investors to sink their teeth into this sector. Asia’s tech giants perform just as strongly and, with valuations that are almost half those of their New York-listed counterparts, are far less pricey.

Big Tech index performance since January 2018 rebased to 0
Big Tech index performance since January 2018 rebased to 0

Next week’s events:

Earnings

January 26 Microsoft, J&J, Visa, LVMH, NextEra, Starbucks, 3M

January 27 Apple, Tesla, Facebook, Boeing

January 28 McDonald’s

January 29 Caterpillar

 

Economic data

January 26 UK employment

January 27 Federal Reserve rate decision and press conference

January 28 Euro zone consumer confidence; US GDP – Q4 advanced

January 29 US core PCE

Read the original article on Business Insider