U.S. and Global Markets Turn Cautious On Rate Hike Worries

Barry Adams
05 Aug, 2022
New York City

Stocks on Wall Street traded lower after a stronger-than-expected jobs report shifted the focus to the next rate hike size. 

The U.S. labor market continued to expand for the nineteenth month in a row and has now regained the 22.0 million jobs lost during the first two months of pandemic in March and April 2020. 

July payrolls increased 528,000 following the 372,000 additions in June, the nineteenth monthly increase in a row, the Bureau of Labor Statistics said Friday. 

The unemployment rate declined to 3.5% from 3.6% in June and dropped to a five-decade low. 

Both the non-farm employment and jobless rates have returned to their February 2020 pre-pandemic level. 

The sharp accelerations in payroll additions surprised many economists who were looking for an increase of less than 265,000 according to an informal survey of six economists conducted by Ticker.com. 

Investors worried that the larger-than-expected payrolls gains despite the slowing economic backdrop may support the Federal Reserve's case for raising rates at a faster pace at its next meeting. 

The latest labor market data will certainly encourage the policymakers to lift rates by as much as 75 basis points at its next two-day meeting ending on September 21. 

The yield on 10-year U.S. Treasury notes shot up to 2.82% and 2-year notes jumped to 3.23%. 

The S&P 500 index fell 0.1% to 4,145.19 and the Nasdaq Composite declined 0.5% to 12,657.56. 

For the week, the S&P 500 index gained 0.4% and the Nasdaq Composite added 2.1%. 

Futures of crude oil fell 12 cents to $88.42 and natural gas declined 13 cents to $7.98 a thermal unit. 

For the week, the West Texas Intermediate crude fell 9.7% and the Brent crude dropped 13.7%. 

Carvana Co soared 40% to $46.98 after the online used-car retailer reported a rise in sales volume. 

Online vehicle sales rose 9% to 117,564 from 105,185 and revenues increased 16% to $3.9 billion a year ago.   

Carvana swung to a quarterly loss of $439 million from a profit of $45 million a year ago. 

Total gross profit per vehicle declined to $3,368, a decrease of $1,752 

Expedia Group closed up 0.3% to 102.52 and the online travel booking platform operator reported stronger-than-expected revenues and earnings in its latest quarterly report. 

Gross bookings soared 26% to $26.1 billion as travel demand further improved on higher demand for lodging, air and other products. 

Bookings for hotels soared 57% from a year ago and 8% higher than in the second quarter of 2019, the previous peak.

Second quarter revenues increased 51% to $3.2 billion and net loss shrank to $185 million from $301 million a year ago. 

DoorDash decreased 0.8% to $80.29 after the delivery company reported revenues in the second quarter increased 30% to $1.6 billion and total orders rose 23% to 426 million. 

Net loss surged to $263 million from $102 million a year ago 

Lyft Inc soared 16.6% to $20.28 after the ride-hailing company reported second quarter revenues jumped 30% from a year agon and 19% from the previous month to $990.7 million. 

Net loss in the quarter rose to $377.2 million from $251.9 million a year ago. 

Active riders in the second quarter increased 15.9% to 19,8 million and revenue per active rider jumped 11.8% to $49.89.

 

Cautious European Markets Digest Positive Earnings 

European markets traded sideways before and after the release of the keenly awaited July labor market survey in the U.S. 

Investors were cautious on the simmering tensions between the U.S. and China. 

China escalated its largest-ever military exercises near Taiwan and fired several missiles over the island nation. 

At least five missiles landed as far as the southernmost islands of Okinawa, Japan. 

China's foreign ministry placed sanctions on the U.S. House Speaker Nancy Pelosi and her immediate family members. 

The U.S. added 528,000 payrolls in July after adding 372,000 in June, the U.S. Bureau of Labor Statistics reported Friday. 

The sharply higher payroll additions were broad based and highlighted the strength in the labor market despite the economic slowdown but also raised the fears of larger interest rate hike at the next Fed's meeting.  

Germany's industrial output increased in June on a sequential basis, according to the latest data from the Federal Statistical Office or destatis.

The seasonally and calendar adjusted production expanded at a faster pace of 0.4% in June after growing at 0.1% in May. 

However, the factory production fell 0.5% from a year ago.  

The DAX index fell 0.6% to 13,573.83, the CAC-40 index declined 0.6% 6,472.95, and the FTSE 100 index inched down 0.1% to 7,439.78.

London Stock Exchange Group gained 3.8% to 8,456 pence after the financial exchanges operator announced its plan to buy back its shares. 

WPP Plc plunged 5.6% to 839.28 pence after the advertising group reported sales growth but the worries of global economic slowdown weighed.  

Deutsche Post AG increased 4.5% to 41.75 euros after the parent of DHL posted better-than-expected quarterly results. 

Pirelli & C. SpA increased 4.3% to 4.43 euros after the tiremaker reported first-half sales rose 24.6% to 3.2 billion euros and net income surged 76% to 233.0 million from 131.6 million euros a year ago. 

The sales increase was driven by roughly 20% increase in prices and volume mix and the positive impact from the foreign exchange contributed 5% points. 

Tire tire sales volume increased 1% in the first-half. 

Credit Suisse Group AG fell 0.4% to 5.25 Swiss francs on the local news that the global financial services company is looking to eliminate "thousands" of positions. 

 

Asian Markets Brave Higher, China Flies Missiles Over Taiwan 

Asian markets traded higher despite the simmering tensions between the U.S. and China. 

China stepped up its military exercises and in a grand display of its military might fired several missiles over Taiwan for the first time. China also launched missiles that landed near Japan. 

Moreover, China's foreign ministry imposed sanctions on the U.S. House Speaker Nancy Pelosi and against her immediate family. 

Stocks in Hong Kong gained followed by advances in tech sector on the hopes that the tensions escalations with the U.S. may deepen the semiconductor chip shortages. 

Tokyo stocks gained despite the rising military tensions in the region as investors reacted to the latest batch of positive earnings from Nippon Steel and Kikkoman. 

Fast Retailing, the parent of Uniqlo, announced its plans of aggressive expansion across North America. 

The Nikkei 225 index increased 0.9% to 28,175.87, the Hang Seng index inched up 0.1% to 20,201.94, and the Sensex index gained 0.1% to 58,387.93. 

The Reserve Bank of India lifted its key lending rate by 50 basis points, the third rate increase in a row. 

The central bank lifted the repo rate by 50 basis points to the pre-pandemic level of 5.4% and retained real GDP growth estimate at 7.2% and inflation estimate at 6.7% for the current fiscal year.  

The repo rate is the rate at which commercial banks in India borrow from the Reserve Bank against the collateral of Indian government bonds or other approved treasury securities. 

Australian market indexes closed at two-month highs after the gains in mineral and mining sector outweighed the weakness in energy sector.  

The ASX 200 Index gained 0.6% to 7,015.60 and the All Ordinaries Index increased 0.6% to 7,250.30.