Global Markets Swing Between Rate and Growth Worries and Extend Weekly Gains

Barry Adams
03 Feb, 2023
New York City

Financial markets turned cautious after the U.S. economy added jobs at a surprisingly faster pace. 

The pace of addition was last seen nearly two years ago and jobless rate dropped to a five-decade low. 

Despite the tight labor market conditions, employment participation rate remained weak and wage growth lagged headline inflation. 

Markets lacked momentum from the get go and struggled to hold losses on the worries that the tight labor market conditions may prolong higher rates for longer. 

Despite the market weakness on the last day of the week, benchmark indexes added between 1% and 3% for the week. 

 

U.S. Hirings Surged, Jobless Rate Dropped to 53-year Low 

The U.S. economy added 517,000 net new jobs in January, the strongest gains since July 2020, the Bureau of Labor Statistics reported Friday. 

Net job additions in the non-farm payrolls were not expected to rise above 175,000 according to several economists and surpassed December's 260,000 net gains. 

In a widespread job addition, the leisure and hospitality industry led the expansion with an addition of 128,000 followed by 82,000 gains in professional and business services, 58,000 in healthcare, 30,000 in retail trade and 25,000 in construction. 

Governments at all levels also added 74,000 net new jobs, partially reflecting the return of 48,000 academic workers at the University of California.   

The January report offers critical insight in the labor market as several large tech companies announce substantial layoffs as companies recalibrate business outlook and prepare for economic slowdown. 

January job gains were ahead of the monthly average of 385,000 in 2022, reflecting the latest revisions in data for the last two months of 2022. 

Both the unemployment rate, at 3.4%, and the number of unemployed persons, at 5.7 million, changed little in January. 

The unemployment rate has shown little net movement since early 2022  and dropped to the lowest level since 1969. 

Labor force participation rate edged higher to 62.4%, but still below the pre-pandemic level of 63.6%. 

Wages rose 0.3% in January from the previous month and surged 4.4% from a year ago. 

 

U.S. Indexes In Review 

The S&P 500 index decreased 1.1% to 4,136.48 and the Nasdaq Composite index declined 1.6% to 12,006.96. 

For the week, the Nasdaq Composite index increased 3.3% and the S&P 500 index advanced 1.6%. 

Crude oil inched lower by $2.60 to $73.27 a barrel and natural gas futures for immediate month delivery fell 5 cents to $2.40 a thermal unit. 

The yield on 2-year treasury notes inched higher to 4.29%, 10-year treasury notes edged higher to 3.52% and 30-year treasury bonds to 3.62%. 

 

U.S. Movers 

Alphabet Inc declined 4% to $103.29 after the parent of Google reported a decline in earnings driven by general weakness in advertising revenue and a larger decline in video ads on its popular YouTube platform.

Alphabet Inc said revenue in the December quarter rose 1% to $76 billion. 

Net income plunged 34% to $13.6 billion from $20.6 billion and diluted earnings per share dropped to $1.05 from $1.53 a year ago.

Amazon.com, Inc dropped 6.3% to $112.91 after the online retailer reported a sharp plunge in earnings partly driven by writing down the value of its stake in the electric vehicle maker Rivian Automotive.

Amazon.com said sales in the fourth quarter increased 9% to $149.2 billion and net income fell to $0.3 billion from $14.3 billion and diluted earnings per share fell to 3 cents from $1.39 from a year ago.

North America sales increased 13% from a year ago to $315.9 billion and international sales fell 8% to $118.0 billion, or increased 4% excluding  changes in foreign exchange rates.  

AWS segment sales increased 29% from a year ago to $80.1 billion.

Net sales in full-year 2022 increased 9% to $514.0 billion from $469.8 billion in 2021.

Net loss was $2.7 billion in 2022 or $0.27 per diluted share, compared to net income of $33.4 billion, or $3.24 per diluted share in 2021.

Apple Inc declined 1.6% to $148.26 after the computing devices maker reported a rare quarterly revenue decline and fell for the first time since 2019.  

Apple Inc said revenue in the December quarter fell 5% from the previous year to $117.2 billion.

Net income dropped 13.2% to $30 billion from $34.6 billion and diluted earnings per share fell to $1.88 from $2.10 a year ago.

 

European Investors Look Beyond Recent Malaise

European markets closed lower on Friday following weaker-than-expected earnings from the U.S. tech companies and strong U.S. jobs report. 

The Euro Area private sector activities expanded in January after shrinking for seven months in a row, the latest survey from S&P Global showed on Friday. 

The PMI Composite Output Index for January was revised higher in the final estimate to 50.3 from the previous estimate of 50.2, and moved from 49.3 in December. 

The rebound in total activities was driven by resurgence in services but manufacturing contracted in the month. 

The rebound in activities after seven months raised hopes that the currency block's economy may be able to avoid a recession. 

 

European Indexes Extend Weekly Gains 

Benchmark indexes were under pressure in Germany but advanced in France and the UK. 

The DAX index decreased 0.2% to 15,476.43, the CAC-40 index increased 1.0% and the FTSE 100 index advanced 1% to 7,901.80. 

For the week, the DAX index increased 1.8%, the CAC-40 index rose 1.5% and the FTSE 100 index advanced 1.6%. 

The euro edged down to $1.08, the British pound eased to $1.22 and the Swiss franc edged lower to 92.54 U.S. cents. 

Crude oil advanced in early trading after the U.S. jobs data showed a sharp jump in payrolls in January raising hopes of stable demand in the world's largest economy. 

Brent crude oil declined $2.35 to $79.82 a barrel and the Dutch TTF Spot price increased 0.9% to Є57.80 per MWh. 

 

Europe Movers 

TomTom NV increased 4% to €7.26 after the mobility device maker reported narrower loss in its latest quarter. 

Revenue in the fourth quarter rose 21% to €139 million and net loss narrowed to €8.8 from €38.8 million a year ago.  

For the full-year 2022, revenue increased 5.7% to €536 million and loss expanded 9% to €102.7 million. 

The company guided 2023 revenue in the range of €540 million and €580 million. 

Sanofi SA declined 1.8% to €85.14 after the French drugmaker estimated 2023 revenue growth in "low single-digit" in constant currency. 

Net sales in the fourth quarter increased 7.3% to €10.7 billion and net income rose 29.1% to €1.46 billion and diluted earnings per share rose 28.9% to €1.16. 

Ferrari NV declined 1.8% to €242.10 after the Italian sports car maker reported quarterly results. 

Shipments in the fourth quarter increased 13% to 3,327 and for the full-year 2022 rose 19% to 13,221. 

Revenue in the fourth quarter increased 17% from a year ago to €1.4 billion and net income rose 3% to €221 million. 

Diluted earnings per share increased to €1.21 from €1.16 a year ago. 

In full-year 2022, revenue increased 19% to €5.1 billion and net income rose 13% to €939 million and diluted earnings per share increased to 13% to 5.09 from €4.50 a year ago.   

Julius Baer Gruppe AG increased 2.8% to 63.42 Swiss francs after the Swiss private banking group reported better-than-expected quarterly results.

 Assets under management declined 12$ to 424 million Swiss francs and net new inflow was 9 billion Swiss francs in the year 2022. 

Operating income declined marginally to 3.9 billion Swiss francs and net profit attributable to shareholders fell 12%, to 950 million Swiss francs. 

Earnings per share decreased 10% to 4.56 Swiss francs and the company proposed to pay a dividend of 2.60 Swiss francs despite the fall in earnings. 

 

Nikkei In Tokyo Turns Volatile 

Stocks in Japan were volatile after U.S. tech companies generally reported weaker-than-expected earnings. 

Benchmark indexes closed at seven-week highs after a business survey showed service sector activities rose at the fastest pace in three months in January. 

The Nikkei 225 index increased 0.4% to 27,509.46 and the yen traded down to 131.45 against the U.S. dollar. 

For the week, the Nikkei index eked out a gain of 0.5%. 

Sony Group soared 6% after the company lifted its operating profit outlook following the strength in the gaming sector. 

 

China Stocks Drop, Service Sector Rebounds 

Stocks in Mainland China and Hong Kong despite a survey showed that the private sector expanded for the first time in five months in January. 

The Shanghai Composite index fell 0.7% to 3,263.41 and the Hang Seng index declined 1.4% to 21,660.47. 

For the week, the Hang Seng fell 2.2% and the Shanghai index decreased 0.2%. 

The Chinese renminbi traded near 6.80 against the U.S. dollar. 

Chinese electric vehicle maker BYD declined 2.9% after Berkshire Hathaway trimmed its stake for the second time in four months. 

Tech stocks led the decliners in Hong Kong trading following the weak results from Google's parent Alphabet, Amazon.com Inc and Apple Inc. 

Alibaba Group fell 3% to HK$105.70, JD.com declined 2.6% to HK$233.20 and Meituan decreased 2.2% to HK$172.80.

 

India Awaits Rate Decision Next Week 

Markets in India advanced on the hopes that the global rate increase cycle is nearing an end and the falling oil prices also supported market enthusiasm. 

Financial stocks led the charge supported by consumer products ahead of the Reserve Bank of India's rate setting committee meeting next week. 

Investors are anticipating a rate hike of 25 basis points before the central bank pauses. 

The Sensex index in Mumbai soared 1.5% or 909.64 points to 60,841.88 and the Nifty index advanced 1.4% or 243.65 points to 17,854.05. 

For the week, The Sensex and the Nifty indexes rose 2.6%. 

The Indian rupee declined to 82.26 against the U.S. dollar. 

TotalEnergies SE confirmed that the company has not decided to reevaluate its investment in two companies controlled by Adani Group following recent fraud allegations.