Friday Rebound Trims Weekly Decline In U.S. Indexes, Markets In Europe and Japan Extend Losses

Barry Adams
05 Apr, 2024
New York City

Benchmark indexes on Wall Street soared as investors cheered the latest jobs report and looked beyond rate uncertainty. 

The S&P 500 index and the Nasdaq Composite advanced 1% after the U.S. economy added more than expected jobs in March, indicating a resilient economy. 

The jobless rate edged slightly lower, but wages rose at a faster pace, making the Federal Reserve's task harder in balancing economic growth and moderating inflation. 

Investors prefer the U.S. economy to grow at a healthy pace of 2% because that supports corporate earnings growth, but at the same time, they prefer job market conditions to weaken, driving wage inflation below 2%. 

So far, wages have been rising at an annual pace of around 4%, and the U.S. economy is expanding at an above-average long-term annual growth rate of 2%. 

The latest jobs report supports the case for the Federal Reserve to hold rates steady at the next meeting, as more investors anticipate the no landing scenario, where policymakers hold rates steady till the end of the year. 

Despite the market bonce in Friday's trading, for the week, the S&P 500 index decreased 1.1% and the Nasdaq Composite declined 1.3% after investors struggled to balance hawkish comments from Fed officials with stronger-than-expected economic data.

 

Nonfarm Payrolls Rise the most in 10 Months 

The U.S. economy added more than expected: 303,000 jobs in March, more than 270,000 jobs in February, and at the fastest pace in ten months. 

The jobless rate eased to 3.8% in March from a two-year high of 3.9% in February. the U.S. Bureau of Labor Statistics noted in its monthly nonfarm payrolls report. 

The average hourly wage for all employees on private nonfarm payrolls rose 0.3%, or 12 cents, to $34.69. 

Over the last 12 months, average hourly earnings increased by 4.1% in March after rising by 4.3% in February. 

 

U.S. Indexes and Yields

The S&P 500 index increased 1.1% to 5,204.34, and the Nasdaq Composite rose 1.2% to 16,248.52. 

The yield on 2-year Treasury notes edged lower to 4.70%, 10-year Treasury notes inched down to 4.35%, and 30-year Treasury bonds edged up to 4.51%.

WTI crude oil increased $0.19 to $86.77 a barrel, and natural gas prices increased 1 cent to $1.78 a thermal unit.

Precious metal prices rose for the third week in a row on speculation that the Federal Reserve is still committed to lowering rates and driving the U.S. dollar lower.

Moreover, the latest job market data suggests that the resilient U.S. economy and expanding labor market conditions may lead to higher-than-estimated inflation. 

The weaker dollar supports higher gold prices because gold and silver metals are priced in the U.S. dollar in international markets.

Gold decreased by $40.09 to $2,329.52 an ounce, and silver rose 55 cents to $27.48. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 104.42.

 

U.S. Stock Movers

Teladoc Health declined 0.5% to $14.17 after the company said chief executive officer Jason Gorevic unexpectedly departed.

The company's board appointed chief financial officer Mala Murthy as temporary chief executive while the company conducted a search for a permanent replacement. 

 

European Markets Trade Sideways Amid Mixed Economic Data

European markets dropped sharply on the final day of a holiday-shortened trading week. 

Benchmark indexes in Frankfurt, Paris, and London declined more than 1% after investors lowered expectations of rate cuts in the U.S. following hawkish comments from Federal Reserve officials. 

Closer to home, Euro Area retail sales declined in February and extended the downturn to the 17th month in a row due to the persistently high cost of living and elevated interest rates. 

 

UK Monthly Home Prices Declined In February 

The Halifax House Price Index in the UK rose 0.3% from a year ago in February, Halifax and the Bank of Scotland reported Friday. 

The home price index increased for the fourth month in a row; however, the pace of an annual increase eased to the slowest pace in the month. 

Despite the market volatility, underlying demand for homes remains strong amid elevated rental costs across the nation. 

Home prices declined 1% on a monthly basis, and an average UK home now costs £288,430, around £2,900 less than last month. 

“Affordability constraints continue to be a challenge for prospective buyers, while existing homeowners on cheaper fixed-term deals are yet to feel the full effect of higher interest rates," Kim Kinnaird, Director, Halifax Mortgages, said. 

The UK's housing market is still in a state of flux, as most existing home owners have yet to feel the full brunt of higher interest rates. 

 

Eurozone Retail Sales Extend Annual Decline Streak to 17th Month

Eurozone retail sales declined in February, highlighting a challenging environment for consumers amid elevated interest rates and high inflation. 

Retail sales in the currency union decreased 0.5% from the previous month in February after staying unchanged in January, Eurostat reported Friday. 

Sales of food, drinks, and tobacco fell by 0.4% after a 0.3% rise the previous month, while non-food product sales decreased by 0.2% after a 0.4% increase. 

Meanwhile, sales of automotive fuel shrank by 1.4%, the largest decline in seven months.

Retail sales on an annual basis declined 0.7% in February, extending the decline to the 17th month in a row after consumers retrenched on basic necessities and avoided discretionary items. 

 

German factory Orders Rebound Slightly from Previous Month in February

Germany's factory orders increased monthly by 0.2% in February, following the revised 11.4% fall in January, Destatis reported Friday. 

Calendar-adjusted orders from a year ago dropped 10.6%. 

In a less volatile three-month comparison, incoming orders from December 2023 to February 2024 were 2.8% higher than in the previous three months. 

However, the increase is mainly due to a large order in December. 

Excluding large orders, incoming orders from December 2023 to February 2024 were 2.0% lower than in the previous three months. 

Orders rose for manufacturing electrical equipment by 10.7% after falling for two months in a row, pharmaceuticals by 6.6%, and the chemical industry by 3.1%. 

In contrast, new orders declined for automotive by 8.1% and for manufacturing metal products by 5.3%.

Incoming orders for capital goods declined by 0.6% and rose for both intermediate goods by 1.0% and consumer goods by 2.2% in February compared to the previous month.

Domestic orders increased 1.5%, but foreign orders eased 0.7%, with demand from the eurozone falling 13.1% and orders from outside the currency union advanced 7.8%.

 

Europe Indexes and Yields

The DAX index decreased by 1.3% to 18,175.04, the CAC-40 index fell by 1.1% to 8,061.31, and the FTSE 100 index inched lower by 0.8% to 7,911.16.

The yield on 10-year German bonds edged down to 2.36%; French bonds inched lower to 2.87%; the UK gilts edged lower to 4.08%; and Italian bonds inched higher to 3.73%.

The euro edged higher to $1.083, the British pound inched higher to $1.263, and the U.S. dollar edged higher to 90.30 Swiss cents.

Brent crude increased $0.22 to $90.86. a barrel, and the Dutch TTF natural gas rose by €0.80 to €26.96 per MWh.

 

Europe Stock Movers

Travel and leisure stocks declined after crude oil prices jumped to near $91 a barrel on the rising tensions in the Middle East following the escalation of tensions between Iran and Israel. 

TUI AG declined 2.3% to €7.56, easyJet declined 2.5% to 554.80 pence, and the parent company of British Air, International Consolidated Airlines Group, fell 2.8% to 171.55 pence. 

UK home builders declined after home prices rose at the slowest pace in four months. 

Barratt Developments, Taylor Wimpey, and Persimmon declined between 12% and 1.7%. 

 

Asian Markets Extended Weekly Losses, China Indexes Rebound

Market indexes in Tokyo dropped 2%, and in Hong Kong, Seoul, and Sydney declined around 1%. 

The latest decline in indexes was sparked by a growing realization that U.S. policymakers are not in a hurry lower rates after a string of positive economic data. 

Those comments are in sharp contrast to the expectations of as many as three rate cuts just two months ago. 

“If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all,” said Kashkari, president of the Minneapolis Federal Reserve Bank, in an interview with Pensions & Investments on Thursday. 

Last month, Kashkari projected two rate cuts in 2024 but turned cautious following the recent economic data. 

The latest update on manufactured goods orders, construction spending, the personal consumption expenditures price index, and job openings suggested resilient economic and labor market conditions. 

The comments of U.S. policymakers over the last two days suggested that policymakers are more  likely to hold interest rates higher for longer. 

 

Japan Indexes Extend Weekly Losses, Yen Rally Falters 

Stocks in Japan traded down, and the benchmark indexes extended weekly losses to more than 2%, after investors lowered rate-cut expectations in the U.S. 

The yen traded above 151 against the U.S. dollar on the worry that the rate differential with the U.S. rates may remain high longer than previously anticipated. 

Moreover, investors worry that the Bank of Japan's rate hike last month may not be enough to stabilize the yen. 

The Japanese yen has been hovering near 152 level against the yen, prompting verbal intervention by the ministry of finance. 

The Japanese corporations are still not likely to increase profit repatriation because of the persistent and large interest rate gap between the rates in Japan, the U.S., and the Euro Area. 

The average household spending in Japan was down 0.5% from a year ago to 279,868 yen, or $1,866, in February, the Ministry of Internal Affairs and Communications said on Friday.

The decline in February follows the 6.3% slide in January.

The Nikkei 225 Stock Average decreased 2% to 38,955.19, and the Topix index dropped 1.3% to 2,698.30. 

The Nikkei 225 index declined below 39,000 for the first time in three weeks. 

Crude oil prices approached a five-month high after conflict in the Middle East escalated following a deadly bombing raid by Israel on Monday. 

Israel bombed Iran's embassy in Syria, killing three senior commanders among seven military advisors. 

Dubai crude oil for June delivery rose $1.05 to $90.85 a barrel after Israel stepped up its bombing campaign this week, raising speculation of a wider war in the Middle East. 

Tokyo Electric Power declined 6.5% to ¥946.60, and Inpex Corp. declined 0.2% to ¥2,466.0. 

Tech stocks were among the leading decliners in Tokyo. 

Tokyo Electron, Screen Holdings, Advantest, and SoftBank dropped between 2.5% and 4%. 

Sumitomo Mitsui Financial, Mizuho Financial, and Mitsubishi UFJ decreased around 2%, after investors lowered rate-cut expectations in the U.S. 

 

Hong Stocks Extend Weekly Losses 

The market index in Hong Kong reversed earlier gains in the day and closed down amid rate worries. 

Financial markets in China are closed for a public holiday on Friday.  

The Hang Seng Index declined 0.7% to 16,606.26 after investors pared back rate-cut expectations, and the index advanced 0.4% in a holiday-shortened week following the rise of 0.3% in the previous week. 

Despite the market intervention by Chinese government-controlled funds in financial markets, the Hang Seng index is the worst-performing market among the top 10 leading world markets. 

The Hang Seng index extended this year's decline to 1%, and extended five-year losses to 44%. 

Alibaba Group, Tencent Holdings, JD.com, Trip.com, Baidu.com, and Meituan declined between 0.2% and 2.2%. 

Xiaomi declined 2.2% to HK$15.14 after the initial enthusiasm faded following the launch of a new electric vehicle in a crowded passenger car market. 

 

India Stocks Trim Weekly Gains, RBI Holds Rates

Stocks in Mumbai lacked direction and the Reserve Bank of India held its repo rate for the seventh time in a row. 

The Sensex and the Nifty indexes struggled to stay above the flatline as investors looked ahead to the monetary policy decision and inflation and economic growth projections from the Reserve Bank of India. 

The Reserve Bank of India held the repo rate at 6.5% and projected fiscal year 2025 economic growth at 7.0%. 

Governor Shaktikanta Das held out for inflation to ease in the second quarter of the fiscal year, supporting the case for a rate cut later in the year. 

The RBI last cut the repo rate by 40 basis points to 4% in May 2020, and two years later, the central bank commenced the lifting of the interest rate after overall inflation picked up following a rise in energy and food prices. 

Market sentiment was cautious in early trading after benchmark indexes on Wall Street declined more than 1%. 

The Sensex index increased 0.03% to 74,248.22, and the Nifty index decreased a fraction to 22,513.70. 

For the week to Thursday's close, the Sensex gained 0.9% and the Nifty index advanced 1.3%. 

On the Mumbai stock exchange, 214 stocks traded at their 52-week highs, and 7 stocks traded at their 52-week lows.

The yield on the 10-year Indian government bonds held steady at 7.09%, and the Indian rupee held steady at ₹83.46 against the U.S. dollar.