Equities extended their recent positive run this weekreceiving support from better-than-expected corporate earnings reports. Friday’s payrolls report from the Labor Department showed employers added 528,000 nonfarm jobs in July, more than double consensus expectations. Following the strong July gains, total nonfarm employment in the US has now returned to its pre-pandemic level. Supply remains a problem, with half of independent businesses reporting at least one job opening that is hard to fill. Suggesting the strength of the employment market may be difficult to maintain and some market volatility could be expected.
The release of the US and Chinese Consumer Price Index (CPI) data this week will be one to watch, particularly since the Federal Reserve (Fed) is expected to continue raising rates in the months to come. US Q2 Earnings Season also continues this week with AIG and Disney due to report this week.
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Weekly Investment News
Global equities have rebounded since mid-June lows, mainly driven by weaker commodity prices, easing inflation concerns, and lower bond yields. Friday’s payrolls report from the Labour Department indicated the unemployment rate fell to 3.5%, matching its February 2020 level. The robust job numbers seem to indicate that the Fed has significant room to raise interest rates; while the strength in the jobs market is good news for the economy, it is bad news for the Fed, as it suggests that more rate hikes are needed to ease inflation.
In other economic data, the latest US ISM manufacturing and services indices both came in above consensus, but fell to its lowest level in two years. The eurozone manufacturing sector contracted last month, with final data signalling the steepest decline in production since the initial COVID-19 lockdowns in 2020.
Core eurozone government bond yields ended broadly level. Yields fell early on due to a rise in tensions between the U.S. and China over Speaker of the House Nancy Pelosi’s arrival in Taiwan. The Bank of England stepped up the pace of its monetary tightening, raising its policy rate 50 bps to 1.75% this week; the largest increase since 1995.
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