(Bloomberg) — European shares trimmed their weekly decline slightly on Friday as investors assessed how the latest US jobs data will affect Federal Reserve monetary policy.
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The Stoxx 600 Index was about 0.1% higher by the close, paring its 0.5% advance following the employment figures. It fell 3.1% on the week — its biggest such decline since mid-March. Chemicals and miners led the gains today, while media and health care stocks dropped the most. Novartis AG dropped as a US judge ruled its Entresto patent claims as invalid.
Nonfarm payrolls in the US increased 209,000 after a downwardly revised 306,000 advance in May, a Bureau of Labor Statistics report showed. The unemployment rate fell to 3.6%. The data comes a day after investors were surprised by a strong private labor report that fueled fresh bets on further interest rate hikes from the Fed.
“The NFP number supports the Goldilocks scenario and puts some pressure away from the Fed,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “There are likely unwinding of hedges, which would lift the market as Treasury yields also fall. Medium-term, we remain cautious. Markets are way too complacent. The risk premia for equities is very low.”
Markets have been roiled this week by renewed fears central banks will have to keep interest rates high for longer as robust economic data keep fueling concerns inflation will remain high. After rallying nearly 9% in the first half of the year, the main regional benchmark has declined 3% in the first week of July.
“Yesterday, the job market was screaming ‘encore’ to the Fed,” said Guillermo Hernández Sampere, head of trading at asset manager MPPM GmbH. “Today’s data will deepen the discussion about further rate hikes. Some might be caught on the wrong foot regarding their expectations.”
The latest figures suggest the US labor market is losing some steam as high interest rates and months of sluggish consumer spending feed into concerns about the economy’s prospects. Yet the job market remains sufficiently healthy to likely keep Fed policymakers on track to resume their series of rate hikes at their meeting later this month, following a pause in June.
Meanwhile, mortgage lender Halifax said UK house prices are falling at their fastest annual pace since 2011 as the property market buckles in the face of rising borrowing costs.
Among individual movers, OSB Group shares plunged after the lender said that it will take a hit of £160m to £180m in the first half of 2023 as customers refinance their mortgages earlier amid higher interest rates. Clariant AG shares rose after the Swiss chemical maker said it was planning more cost-cutting measures to offset weakening demand and lowered its sales forecast less than analysts anticipated.
Here are more market comments on the US jobs data:
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Julien Lafargue, chief market strategist at Barclays Private Bank: “It is a fairly mixed report. On the positive side, the first miss versus expectations in 15 months should ease the concerns raised by the ADP data and the risk of the Fed having to be much more aggressive. This should lead to a risk-on knee jerk reaction. On the negative side – and probably more medium term for the market — this data suggest the US job market is losing a bit of momentum. This is what the Fed wants, but the risk is that job creations decline faster than anticipated (and desired) going forward. Overall it shouldn’t change the current narrative with the much more important factor when it comes to the Fed’s next move being next week’s CPI print.”
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Mathieu Racheter, head of equity strategy at Bank Julius Baer: “The softer-than-expected payroll data eases the fears that the Fed will continue to hike after the July meeting. We have been inclined to buy and recommend focusing on quality growth (i.e. IT, communications) coupled with some defensive plays (healthcare, Switzerland).”
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James Athey, investment director at Abrdn: “It’s easy enough to see why the rates market has rallied after today’s NFP. The headline was a miss, there were negative revisions and after the last few weeks there can’t be many more rates longs left out there. The bar to a rates rally was thus fairly low. The fact that equities are popping a little higher is a bit more questionable, given that jobs growth was still strong and average hourly earnings ticked higher, with unemployment ticking lower. So it’s not exactly a green light for the Fed to ease off the brake.”
For more on equity markets:
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Man Group Pounces on US Credit Manager Varagon: The London Rush
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–With assistance from Sagarika Jaisinghani and Ksenia Galouchko.
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