On Friday, global stock markets rose while the US dollar fell from a 24-year high against the Japanese yen as investors’ worries about the Federal Reserve’s plans for aggressive interest rate hikes were allayed by data showing the US labor market is starting to loosen.
As the unemployment rate rose to 3.7%, despite the fact that US firms employed more people than projected in August, the Federal Reserve may feel less pressure to deliver a third rate boost of 75 basis points this month.
Investors were buoyed by this news, and the S&P 500 index ended up 1.2%. The Nasdaq Composite rose 1.2% and the Dow Jones Industrial Average rose 1%.
The market is relieved that the Fed won’t have to hike interest rates as quickly to combat inflation, a move that has been feared to usher in a recession, thanks to softer statistics.
Following six-week lows on Thursday, European equities rallied 2%, with Britain’s FTSE index rising 1.8%.
The global stock market rally sent the MSCI equities index up 1.2%. However, it looks like it will decrease 1.9% for the week, which would be the third consecutive week of declines.
New Chinese lockdowns have added to prior worries about global growth, and Europe is feeling the pinch of higher oil prices as a result of the conflict in Ukraine.
According to Giles Coghlan, chief currency analyst at HYCM, the market is “laser-focused on how aggressive the Fed is going to be with its rising cycle,” and this emphasis has only increased after last week’s address by Fed head Jerome Powell at the Jackson Hole central banking conference.
Read other related articles: USD rises, stocks fall ahead of Jackson Hole
He claimed that “China slowdown, euro zone recession, and a hawkish Fed” are the three biggest concerns for investors.
According to a report by BofA, equity funds suffered the fourth highest weekly outflow of 2022, while bond funds witnessed redemptions for a second consecutive week.
Fears of a recession are growing in Europe as a survey released on Thursday showed that manufacturing output throughout the euro zone fell again last month due to consumers cutting spending due to the ongoing cost of living problem.
Rising interest rates have helped the dollar reach a 24-year high versus the yen of 140.80, prompting Japan’s Finance Minister Shunichi Suzuki to threaten “necessary” action to stem the currency’s volatility. At New York’s midday, the yen had retreated to 140.07.
After reaching a 20-year high the previous day, the dollar index (a measure of the dollar’s value relative to a basket of six other currencies) fell 0.6% to 108.95.
The Euro appreciated by 0.8% against the Dollar, to $1.0027.
After reaching a 14-year high of 3.5510% on Thursday, the yield on benchmark 2-year notes dipped to 3.4141% on Friday.
Yields on 10-year Treasuries dropped to 3.2139 percent. The yield on German 10-year bonds jumped by 2.5 basis points to 1.589%, putting it close to its two-month high. This increase comes as markets anticipate a rate hike by the European Central Bank of 75 basis points next week.
According to Martin Moryson, European economist at DWS, “about half of the euro zone is facing inflation of over 10%, the pressure is rising on the ECB.”
The MSCI All-Country Asia ex-Japan Index declined 0.6%, and is on track for its worst weekly performance since the middle of June, when it dropped 3.6%.
The Nikkei remained unchanged, while Chinese blue chips fell 0.5%.
On Thursday, Chengdu, a city of 21.2 million in southwestern China, stated that the city will be placed under lockdown. Shenzhen, a technological powerhouse, also handed out new social distance laws as additional Chinese towns attempted to combat reoccurring COVID-19 breakouts.
Although Nomura analysts still believe China will retain its zero-COVID policy until the (leadership) reshuffle is finalized in March 2023, they anticipate a slower pace of relaxing of the policy after that date.
Expectations that OPEC+ will discuss output cuts at a meeting on September 5 helped oil prices recover from recent lows, however worries over China’s COVID-19 limitations and sluggish global economy kept gains in check.
Futures contracts for both Brent crude and US West Texas Intermediate (WTI) crude gained by 2.7%, with Brent reaching $94.87 per barrel and WTI climbing to $88.98.
Gold benefited from a weaker dollar, increasing 1.2% to $1716.89 per ounce on the spot market.
On Friday, the rouble lingered at the 60 mark versus the dollar, while the Russian benchmark MOEX stock index reached its highest level in over three months as investors banked on more companies following Gazprom’s lead in raising dividends.
In a move that sent shares of the gas juggernaut Gazprom up by around 25% and lifted Russian indices, the company’s board this week recommended the payment of 51.03 roubles ($0.8456) per ordinary share on the first half of 2022.
According to Russ-chief Invest’s economist, “investors seem to have brightened up and hopes that the dividend idea is alive and that more Russian corporations will join with Gazprom are gradually pulling the market upwards.”
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