Europe and the US rallied when employment increased by less than expected.
United States
Stocks closed higher Friday thanks to a positive reaction to the August US employment report. While the indices ended with gains, they were well off their highs for the day. The Dow Jones industrials, S&P and Nasdaq all finished the day 0.4 percent higher. For the week, the Dow and S&P were up 0.5 percent while Nasdaq added 0.6 percent.
Market strength came following the employment situation report showing that fewer jobs than expected were added. Employment climbed by 151,000 jobs after surging by an upwardly revised 275,000 jobs in July. The unemployment rate was unchanged 4.9 percent. While the data were somewhat disappointing, analysts suggested that the report will lead the Federal Reserve to refrain from raising interest rates at its FOMC meeting later this month.
Some traders were discounting the disappointing employment data in order to take into account the so-called ‘August curse’. Historically, the August jobs report has been a seasonally weak and volatile one and it is often revised substantially higher. Fed officials, including Chair Janet Yellen and Vice Chair Stanley Fischer, have signaled in recent speeches that rates may be on an upward trend in the near future as long as economic data cooperates. In a separate report, the July trade deficit narrowed to $39.5 billion from a revised $44.7 billion in June. July factory orders jumped 1.9 percent on the month.
Energy stocks moved to the upside benefiting from a rebound by the price of crude oil. Tobacco, steel, telecom and utilities stocks also gained on the day. However, shares of biotechnology and pharmaceutical companies fell after Democratic presidential candidate Hillary Clinton unveiled a new drug pricing plan that would allow government officials to impose penalties for “unjustified price increases” on older treatments. EpiPen maker Mylan, a company at the heart of the drug pricing debate retreated. Household goods makers were higher including Colgate-Palmolive, Tyson Foods, Reynolds American and Altria Group. VeriFone Systems slumped after it reported disappointing revenue and cut its forecast for the year. The company said the adoption of chip payment cards continued to go more slowly than expected.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$15.20 to US$1,324.70. Copper futures were up 0.2 percent to US$2.08. WTI spot crude was up US$1.28 to US$44.44. Dated Brent spot crude was up US$1.38 to US$46.83. The US dollar was up against the yen, euro and the Swiss franc. It retreated against the pound, Canadian and Australian dollars. The Dollar Index was up 0.2 percent. The yield on US Treasury 30 year bond was up 5 basis points to 2.28 percent while the yield on the 10 year note was up 4 basis points to 1.60 percent.
Europe
European stock indices advanced on the day and week. Shares accelerated higher after the release of weaker than expected US job growth in August. The prevailing opinion among investors is that the Federal Reserve will now be unable to increase interest rates at its next meeting later this month. For the day, the FTSE was up 2.2 percent, the CAC gained 2.3 percent, the DAX advanced 1.4 percent and the SMI added 1.9 percent. The gains propelled the indices into positive territory for the week. They added 0.8 percent, 2.3 percent, 0.9 percent and 1.5 percent respectively.
Bank stocks gained, extending their recent upside move. Shares of European exporters were under pressure due to swings in the currency market. Fresenius Medical Care advanced after it said that it would acquire 85 percent equity stake in the Indian dialysis group, Sandor Nephro Services, from a group of investors for an undisclosed amount. BMW, Daimler and Volkswagen climbed after releasing their US sales figures for August. Startup incubator Rocket Internet sank after its first-half loss widened from last year due to impairments at one of its units. Accor climbed on a broker upgrade. In London, transport firm Go-Ahead Group jumped after reporting a rise in annual profit and lifting its dividend. Eckoh, the provider of secure payment products and customer service solutions, plunged after issuing a profit warning. Fresnillo, Anglo American, Randgold and Glencore advanced in London as did BP and Royal Dutch Shell. Carnival declined after a broker downgrade.
Eurozone producer prices continued to fall in July but the pace of decline eased for a third consecutive month. The PPI dropped 2.8 percent on the year after sinking 3.1 percent in June. Italy’s gross domestic product was unchanged on the quarter after growing 0.3 percent in the first quarter. Spain’s unemployment increased in August after falling for five straight months.
Asia Pacific
Stocks were mixed Friday as investors here waited for the US employment report that would be released after markets here closed for the week. The oil price downturn overnight, sluggish US manufacturing data and the IMF’s warning that the global economy is in need of “forceful action” to avoid “low-growth trap” also kept investors nervous.
The Shanghai Composite edged up 0.1 percent (but was 0.1 percent lower on the week) as property developers rebounded from losses in the previous session. The Hang Seng was up 0.5 percent on the day and 1.6 percent higher for the week.
The Nikkei was virtually unchanged Friday (down 1.16 points) but added 3.5 percent on the week. Sumitomo Chemical, TDK and Asahi Glass retreated while Kansai Electric Power, Dai-ichi Life Insurance, Chugai Pharmaceutical and J Front Retailing rallied. Toshiba and Sony climbed after the US dollar traded higher against the yen. Toyota Motor and Honda Motor declined after reporting weak August US sales. Tokyo Dome jumped on a Nikkei report that it likely earned a group operating profit of about ¥6.5 billion in the February to July period.
Australian shares fell for a third day as investors waited for US data and the G20 meeting in China over the weekend. The S&P/ASX lost 0.8 percent while the All Ordinaries was 0.7 percent lower. On the week, the former was down 2.6 percent and the latter, 2.4 percent. The big four banks declined. Beach Energy and Woodside Petroleum were lower after oil futures closed down more than 3 percent Thursday to hit another three week low. BHP Billiton and Rio Tinto advanced. Gold miners Northern Star Resources, Newcrest, Regis Resources and Evolution Mining rallied after gold rebounded from two month lows to finish higher overnight.
The Kospi added 0.3 percent on buying by foreign investors after official data showed the country’s gross domestic product grew at a faster than expected pace in the second quarter of 2016 thanks to increased local demand and exports. The Sensex added 0.4 percent on the day and 2.7 percent on the week.
Looking forward

Central Bank activities

Sep 6

Australia

Reserve Bank of Australia Monetary Policy Announcement

Sep 7

Canada

Bank of Canada Monetary Policy Announcement

United States

Federal Reserve Beige Book Released

Sep 8

Eurozone

European Central Bank Monetary Policy Announcement

The following indicators will be released this week…

Europe

Sep 5

Eurozone

Composite PMI (August)

France

Composite PMI (August)

Germany

Composite PMI (August)

UK

Services PMI (August)

Sep 6

Eurozone

Gross Domestic Product (Q2.2016)

Germany

Manufacturing Orders (July)

Sep 7

Germany

Industrial Production (July)

UK

Industrial Production (July)

Sep 9

Germany

Merchandise Trade (July)

UK

Merchandise Trade (July)

Asia/Pacific

Sep 5

Japan

Composite PMI (August)

Sep 7

Australia

Gross Domestic Product (Q2.2016)

Sep 8

Australia

Merchandise Trade (July)

China

Merchandise Trade (August)

Japan

Gross Domestic Product (Q2.2016)

Sep 9

China

Consumer Price Index (August)

Producer Price Index (August)

Americas

Sep 6

United States

Services PMI (August)

ISM Nonmanufacturing PMI (August)

Sep 7

United States

JOLTS (July)

Sep 8

United States

Initial Unemployment Claims (week ending prior Saturday)

Sep 9

Canada

Labour Force Survey (August)

Global Stock Markets

*Note — all releases are listed in local time.

Source: Fidelity

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