Last week, global stock markets mostly experienced a decline. In the US, the Dow Jones Industrial Average fell by 1.1%, the S&P 500 Index dropped by 2.3%, and the Nasdaq 100 Index declined by 3.0%. In Europe, the STOXX 600 Index decreased by 2.4%, with the German DAX Index experiencing the largest decline at 3.1%.
【Source: MacroMicro Date2023/7/31-2023/8/4】
【Source: MacroMicro Date2023/1/1-2023/8/4】
On August 4th, the US Bureau of Labor Statistics released data showing that the US added 187,000 non-farm jobs in July, slightly lower than the expected 190,000, marking the second consecutive month below expectations. The June data was revised downward from 209,000 to 185,000.
However, the unemployment rate for July was 3.5%, slightly lower than the expected 3.6%. Average hourly earnings increased by 4.4% year-on-year, surpassing the expected 4.2%.
【Source：MacroMicro】
The latest non-farm report presents a mixed picture. The lower-than-expected job growth implies reduced pressure on the Federal Reserve to raise interest rates, but the higher-than-expected wage growth suggests increasing inflationary pressures.
Only when income growth slows down can we expect sustained downward trends in inflation. However, currently, wage growth is outpacing inflation, laying the groundwork for a potential wage-inflation spiral.
Following the release of the non-farm report, market expectations for rate hikes in September and for the rest of the year remain relatively low, with a 13.5% probability of a continued rate hike by the Federal Reserve in September.
【Source：CME】
Mitrade Analyst：
Employment data and PCE data serve as important factors in determining the Federal Reserve's decision to raise interest rates. Currently, both indicators are declining, which favors a moderation of rate hike expectations. However, if specific data points such as wage growth exceed expectations, it could potentially lead to a rebound in subsequent inflation. Therefore, our view remains unchanged that the Federal Reserve will likely skip a rate hike in September but may consider raising rates in the fourth quarter.
After the US stock market closed on August 1st, Moody's downgraded the long-term foreign currency debt rating of the United States from AAA to AA+. This is the second time the US has experienced a rating downgrade, following Standard & Poor's downgrade in August 2011.
On the previous day, the US Treasury announced a large-scale debt issuance plan. The dual blow of these two events ignited concerns about the US fiscal outlook, abruptly ending the five-month bull market, with stocks and bonds both falling.
【Source：Investing ；10-year government bond yields soar significantly】
However, most analysts remain optimistic because the macroeconomic environment in the US currently lacks the imminent crisis seen in 2011. The reason for the US debt downgrade this time is more related to certain issues with the debt itself rather than significant implications for the US economy. The Chief Economist at Bernstein stated, "I don't believe this downgrade is a significant signal of any future trouble."
The majority of the decline in the US stock market this time can be attributed to profit-taking by market participants. In an environment of ongoing macro uncertainty and economic slowdown, the market had already priced in a considerable amount of optimism, becoming overly prosperous, and speculative positions continued to increase. Moody's downgrade served as an excuse for selling.
Mitrade Analyst：
The market is actually reflecting the risk of an economic slowdown rather than the downgrade by Fitch Ratings. Previously, investors had been betting on the prospect of a soft landing or even no landing at all for the US economy, causing even the staunchest bears to capitulate. However, as market pricing starts to reflect the economic slowdown, stock markets become susceptible to corrective blows.
The financial report of large tech stocks is a mixed bag. Apple has experienced three consecutive quarters of declining revenue, marking its longest sales decline since 2016. On Friday, its stock fell by 4.8%, causing the company's market value to drop below $2.86 trillion. On the other hand, Amazon surpassed quarterly profit expectations and saw a significant surge of 8.3% on Friday.
Last week, the Nasdaq 100 and S&P 500 indices both experienced cumulative declines of 3.0% and 2.3% respectively, marking their worst weekly performance since March this year.
According to Refinitiv data, among the 422 companies in the S&P 500 index that have reported quarterly earnings, 79% of them exceeded expectations, surpassing the average level of 66% since 1994. Despite the substantial earnings surpassing Wall Street's expectations, the stock market remained unconvinced. This may be due to the fact that the market had set very low expectations to begin with.
【Source：MacroMicro】
Mitrade Analyst：
Most of the important financial reports have been released, and the future stock market trend will be influenced more by macroeconomic data. After a significant increase in the indices, any unfavorable macro data could serve as a reason for people to take profits. Pay attention to the US July CPI data scheduled to be released this Thursday. If the July CPI data exceeds expectations, it may trigger a decline in the S&P 500 index.
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