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The US stock market saw a minor decline on Friday, following the release of weaker than expected US jobs market data. However, this did not significantly impact expectations of a Federal Reserve interest rate rise later in the month.
At the start of trading, the S&P 500 index, a major benchmark for Wall Street, slipped by 0.2 per cent.
The US Department of Labor’s employment report showed that the economy added 209,000 jobs in June, which fell short of the forecasted 225,000 jobs predicted in a Reuters poll of economists. This marks the first time in 15 months that the report has not met market expectations.
Despite this, the US unemployment rate decreased from 3.7 per cent in May to 3.6 per cent in June, indicating a degree of labor market resilience. This boosted the probability of the Fed raising interest rates further to combat persistent inflation.
Most investors still anticipate a rate increase in July, as revealed by the minutes from the Fed’s previous meeting. These minutes indicated that, despite temporarily pausing their policy tightening campaign, most rate setters believe inflation remains unacceptably high.
“Today’s US labor report presented mixed results, but the market appeared to focus on the negatives,” stated Matthew Ryan, head of market strategy at financial services firm Ebury.
He added, “We do not believe that today’s data will significantly alter the Federal Reserve’s plans. It still seems likely that there will be a 25 basis-point hike at the July FOMC meeting, with additional tightening beyond that determined by upcoming inflation figures.”
The yield on the two-year Treasury note, which is sensitive to Fed policy changes, fell by 0.03 percentage points to 4.98 per cent. This occurred a day after US borrowing costs reached a 16-year high. The yield on the benchmark 10-year note rose by 0.03 percentage points to 4.07 per cent, remaining close to its highest level since early March. Bond yields decrease as prices rise.
The dollar, which tends to strengthen when investors anticipate interest rate hikes, fell by 0.3 per cent against a basket of six major currencies.
In Europe, the Stoxx 600 index, representing the entire region, rose by 0.1 per cent. Additionally, France’s Cac 40 and Germany’s Dax climbed by 0.5 per cent, reversing losses from the previous session.
A broad-based sell-off occurred across US, European, and Asian stocks the day before due to separate private sector jobs data indicating an increase. This reinforced the belief that the Fed will resume raising interest rates.
Mohit Kumar, chief Europe financial economist at Jefferies, commented, “The labor market data is likely to become more important than inflation data in the future. The main question for central banks and markets will be when the economy starts showing signs of a slowdown.”
In Asian markets, declines continued from the previous day, with Hong Kong’s Hang Seng falling by 0.9 per cent and China’s CSI 300 dropping by 0.4 per cent. Japan’s Topix index declined by 1 per cent.
Investors faced further concerns as the Hang Seng Mainland Bank index declined by 1.2 per cent, approaching its lowest point since November 2022. This sector had already experienced losses due to a weakening economy and was further impacted by Goldman Sachs downgrading some of its top lenders earlier in the week.
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