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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European Central Bank holds steady on $2.25 trillion bond-buying package after stepping up stimulus in December

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ECB boss Christine Lagarde has seen the central bank through the coronavirus crisis

  • The European Central Bank announced it would keep interest rates at record lows and bond-buying at €1.85 trillion ($2.25 trillion).
  • The ECB said it had “decided to reconfirm its very accommodative monetary policy stance”.
  • It comes after it boosted bond-buying by €500 billion in December to support the Eurozone.
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The European Central Bank held interest rates at their record-low level and kept bond-buying steady on Thursday, taking a breather after increasing support to the coronavirus-ravaged Eurozone economy in December.

The ECB’s governing council kept its main deposit rate at -0.5%, meaning banks are charged to keep money with the central bank, encouraging them to lend it out.

After increasing support last month, the ECB kept its key bond-buying scheme – the pandemic emergency purchase programme (PEPP) – at €1.85 trillion ($2.25 trillion).

Yet the ECB signalled on Thursday that it will not necessarily use the whole package. “If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,” its statement said.

The euro was up 0.3% against the dollar in the wake of the decision, to $1.214.

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Analysts expected the ECB to hold fire at its January meeting after it ramped up its bond-buying programme by €500bn in December and pushed back the end of the PEPP until at least March 2022.

Coronavirus cases have surged across Europe since the autumn, forcing countries to lock down their economies once again. Germany on Tuesday extended its lockdown until the middle of February and introduced stricter rules.

At a press conference following the decision, ECB president Christine Lagarde said new cases and restrictions “have likely led to a decline in activity in the fourth quarter of 2020 and are also expected to weigh on activity in the first quarter of this year”.

Yet she said the Bank’s monetary policy is currently “very accommodative”. And she stressed there were a number of “positives” including the rollout of vaccines, the Brexit deal, and the agreement of the €750 billion EU recovery fund.

Lagarde said inflation is likely to “remain subdued” for the foreseeable future due to weak demand, low wage pressures, and the rise in the euro. Yet she said the ECB expected inflation to pick up from December’s -0.3% reading due to increases in energy prices.

The ECB boss urged Eurozone governments to keep spending to support their economies. “The situation is sufficiently uncertain that fiscal [support] needs to be continued at the national and European level,” she said.

Jai Malhi, strategist at JPMorgan Asset Management, said: “The ECB held policy steady today, hoping that its measures implemented in the December meeting alongside the EU recovery fund rollout, will be enough to support the economy until the outlook brightens.

Read more: Bubbly behavior is brewing in markets and Big Tech is reeling from 2 major political events this month – Three investing heavyweights that jointly manage almost $1 trillion break down the impact

“There is no doubt however that Lagarde faces a daunting task in returning inflation to [the 2%] target from its current lull. The recent strength of the euro could make that task even harder. 

“The euro strengthening further over the course of the year could prove to be the catalyst for further action from the ECB and may even bring about the discussion of deeper negative interest rates.”

Claus Vistesen of consultancy Pantheon Macroeconomics noted that Thursday was the first time the ECB had officially said it may not use all of the PEPP.

“This is a slight hawkish tilt in the communication, and also one which could become a target for markets,” Vistesen said.

“After all, the ECB is now saying that if yields remain as low as they are now, there isn’t a reason to deploy the PEPP in full. We wouldn’t put it past markets to test the central bank on this.”

Yet Vistesen noted that Lagarde also said the ECB could expand the PEPP if necessary.

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