Canada’s labor market is cooling down. The center of investors’ attention shifted to the US inflation data

By JustMarkets

At the close of the stock exchange on Friday, the Dow Jones Index (US30) fell by 0.43% (-1.13% for the week), and the S&P 500 Index (US500) fell by 0.53% (-2.33% for the week). The NASDAQ Technology Index (US100) closed negative by 0.36% (-2.99% for the week). The weekly percentage declines for the S&P 500 (US500) and NASDAQ (US100) were the largest since March as investors locked in profits. Rising Treasury bond yields, which are considered one of the safest investments in the world because the US government backs them, have dampened demand for stocks. Investor focus has now shifted to US inflation data this week. A decline in consumer prices could lead to more stock buying.

US labor market data on Friday showed resilience again. Over the last month, the US economy added 187k jobs (expectation +205k), and the unemployment rate fell from 3.6% to 3.5%. But the probability of an interest rate hike at the September meeting did not increase, indicating that investors expect the US Fed to have peaked rates. Traders also began to worry about the first signs of cooling in the labor market in terms of falling job openings and rising jobless claims.

Two Federal Reserve officials said that slower job growth in the US indicates that the labor market is coming to a better equilibrium, and there is no need for further rate hikes. They said the US Central Bank needs to start thinking about how to keep interest rates high and for how long.

In Canada, there is a cooling of the labor market. In July, the Canadian economy unexpectedly showed a contraction of 6,400 jobs (forecast + 24,600), and the unemployment rate rose to 5.5%. This reinforced analysts’ expectations that the Bank of Canada would suspend its campaign to raise interest rates. Money markets now expect a rate hike in September with a ;28% probability, up from 32% before the report.

Equity markets in Europe were mostly up on Friday. Germany’s DAX (DE40) rose by 0.37% (-2.94% for the week), France’s CAC 40 (FR40) gained 0.75% on Friday (-2.11% for the week), Spain’s IBEX 35 (ES35) rose by 0.66% (-3.18% for the week), and the UK’s FTSE 100 (UK100) closed positive by 0.47% (-1.69% for the week). Today, Germany will release data on industrial production. The Index is expected to decline amid slowing global demand. Germany’s economy is stagnating as weak purchasing power, higher interest rates, and low manufacturing orders have put pressure on the eurozone’s largest economy.

Gold prices rose slightly on Monday, recovering from sharp losses last week. Rising US Treasury bond yields, caused by some cooling of the labor market and due to the downgrade of US ratings, had a negative impact on gold prices in recent sessions. As a reminder, that gold has an inverse correlation to the yield of US government bonds.

Oil prices are showing growth for the sixth week in a row after Saudi Arabia cut production last week. Oil traders expect the supply cut to offset a potential slowdown in demand this year. Expectations of additional stimulus measures in China, the biggest oil importer, also contributed to sentiment.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) fell by 2.83% for the week, China’s FTSE China A50 (CHA50) fell by 0.28%, Hong Kong’s Hang Seng (HK50) ended the week down by 3.45%, and Australia’s S&P/ASX 200 (AU200) ended the week negative by 1.06%.

This week’s focus will be on earnings reports from some of Asia’s biggest companies. This Thursday, Chinese e-commerce giant Alibaba (BABA) will release its June earnings report, which could provide additional insights into Chinese consumers. Alibaba is expected to provide more details on its plan to split into six separate companies. Japanese technology giants Sony Corp. and SoftBank will also report quarterly earnings this week, while Commonwealth Bank of Australia, Australia’s largest bank, will report its results for the fiscal year ended June 30 on Wednesday. The focus will be on how Asia’s biggest companies are coping with rising global interest rates and whether the deteriorating economic situation is reflected in corporate earnings.

This week also sees key inflation data from the US and China, with the latter expected to slip into disinflation amid a slowing economic recovery. China’s trade balance data will give a fuller picture of the state of Asia’s largest economy amid weaker demand for goods in domestic and foreign markets.

S&P 500 (F)(US500)  4,478.03  −23.86  (−0.53%)

Dow Jones (US30) 35,065.62  −150.27 (−0.43%)

DAX (DE40)  15,951.86 +58.48  (+0.37%)

FTSE 100 (UK100) 7,564.37 +35.21 (+0.47%)

USD Index  102.01 -0.53 (-0.52%)

• – German Industrial Production (m/m) at 09:00 (GMT+3);
• – FOMC Member Harker Speaks at 15:15 (GMT+3);
• – FOMC Member Bowman Speaks at 15:30 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.