The Bank of England raised the interest rate by 0.25%. Volatility in the markets decreased ahead of the important labor market report NFP

August 4, 2023

US stock indices continued to decline yesterday. At the close of the stock market yesterday, the Dow Jones Index (US30) was down by 0.19%, while the S&P 500 Index (US500) decreased by 1.25%. The NASDAQ Technology Index (US100) closed negative by 0.10%.

The monthly Nonfarm Payrolls labor market report will be released in the United States today. Over the past year, economists have consistently underestimated the strength of the economy, leading to a repeated underestimation of employment gains. Given this pattern and forecast bias, it is reasonable to believe that the NFP numbers could surprise upward again. The latest labor market data this week was mixed. On the one hand, job openings and jobless claims rose, indicating the first signs of a cooling labor market. On the other hand, the ADP report was strong, exceeding the consensus forecast by two times. Therefore, today’s NFP data could be crucial in understanding where the US labor market stands.

The US Services Business Activity Index fell to 52.7 in July from June’s reading of 53.9, as business activity, employment, and new orders declined and prices rose. The services sector has the biggest impact on assessing the health of the US economy, so changes in subsections of the report could indicate the future direction of the economy.

Amazon (AMZN) released second-quarter results on Thursday that beat analysts’ estimates and provided an upbeat outlook for the third quarter. Amazon shares were up more than 6% in after-hours trading following the report. Qualcomm (QCOM) shares fell more than 8% after the company provided a weak outlook for the current quarter, with revenue falling short of Wall Street estimates. On Thursday, Apple (AAPL) reported third-quarter results that beat forecasts as strength in services helped offset iPhone sales that fell short of expectations. Apple shares were down by 1% in trading following the report.

Equity markets in Europe were declining yesterday. Germany’s DAX (DE40) was down by 0.79%, France’s CAC 40 (FR40) fell by 0.72%, Spain’s IBEX 35 (ES35) lost 0.39%, and the UK’s FTSE 100 (UK100) closed negative by 0.43%.

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The Bank of England (BoE) expectedly raised interest rates by 0.25% yesterday. The distribution of votes changed slightly from the previous decision: 7 Committee representatives were in favor of a rate hike, and only one was in favor of keeping the rate unchanged (previously 2). Meanwhile, representatives Haskel and Mann favored a 0.5% rate hike, indicating the desire of some Bank policymakers to pursue aggressive monetary policy. Core inflation was cited as the most important aspect of inflation, which has yet to show a significant decline, while a decision on quantitative tightening (QT) measures will be made next month.

Saudi Arabia announced on Thursday that it would extend its production cuts in August and September by one million barrels per day. This helped push the oil price up 2% yesterday. OPEC+ countries will meet today to determine the next production quotas.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.68%, China’s FTSE China A50 (CHA50) added 0.89%, Hong Kong’s Hang Seng (HK50) was down by 0.49% on Thursday, and Australia’s S&P/ASX 200 (AU200) was negative by 0.58% on the day. But Chinese stocks returned to the upside on Friday, outperforming most of their regional peers. China’s top economic committees said in a joint statement that the government would take additional measures to boost consumer spending and improve local liquidity. Business activity data released this week showed China’s economy started the third quarter on a weak note.

S&P 500 (F)(US500) 4,501.89 −11.50 (-0.25%)

Dow Jones (US30) 35,215.89 −66.63 (−0.19%)

DAX (DE40) 15,893.38 −126.64 (−0.79%)

FTSE 100 (UK100) 7,529.16 −32.47 (-0.43%)

USD Index 102.50 -0.09 (-0.09%)

Important events for today:

– Australia RBA Monetary Policy Statement (m/m) at 04:30 (GMT+3);
– UK Construction PMI (m/m) at 11:30 (GMT+3);
– Eurozone Retail Sales (m/m) at 12:00 (GMT+3);
– US Nonfarm Payrolls (m/m) at 15:30 (GMT+3);
– US Unemployment Rate (m/m) at 15:30 (GMT+3);
– Canada Unemployment Rate (m/m) at 15:30 (GMT+3);
– Canada Ivey PMI (m/m) at 17:00 (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.

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The Bank of England raised the interest rate by 0.25%. Volatility in the markets decreased ahead of the important labor market report NFP