Weekly Market Commentary July 31st to August 4th 2023
Employment data was mixed this week with Non-farm Payrolls underwhelming and unemployment being better than expected. Non-farm payrolls rose by 187,000 after being downwardly revised last month to 185,000. It was the second straight negative surprise reflecting possible cooling in the labor market. However, the ADP employment report suggests strength in the labor market showing US companies added 324,000 jobs in July, much higher than consensus. Furthermore, the unemployment rate declined to 3.5% from 3.6% last month. Average hourly earnings month-over-month increased 0.4% and year-over-year increased 4.4%, both beating expectations and matching last month’s data. Similarly, the labor force participation rate remained the same at 62.6%.
US job openings fell in June to 9.6 million, the lowest level since April 2021. Hiring also fell to a two-year low, suggesting some softening in demand for workers.
Initial jobless claims rose slightly to 227,000 last week. The four-week moving average, which smooths out weekly volatility, is the lowest its been since March. US mortgage applications fell last week to a two-month low as the 30-year fixed mortgage rate rose to 6.93%
US manufacturing activity contracted in July for a ninth-straight month. S&P Global US Manufacturing PMI rose to 49.0 in July while ISM manufacturing rose to 46.9. Only two manufacturing industries, petroleum products and furniture, registered overall growth in July. The US services sector, however, expanded in July, albeit at a slower pace. The ISM services index fell to 52.7 and S&P Global US Services PMI fell to 52.3, lower than the prior month as employment growth is softening. Overall, US composite PMI was expansionary with a reading of 52, marking the sixth consecutive month of expansion.
The equity markets suffered their worst weekly loss since the banking crisis in March. The S&P 500 fell 2.27% to 4,478, the Nasdaq fell 2.85% to 13,909, and the Dow Jones fell 1.11% to 35,066. The 2-year US Treasury fell 11bps to 4.77% while the 10-year US Treasury rose 9bps to 4.04%, narrowing the inversion to 73bps.
Next week we will be closely monitoring inflation data with the release of the Consumer Price Index and Producer Price Index.