Returning from the Fourth of July holiday, investors parsed through the Fed’s minutes from its June policy meeting which revealed that nearly all officials believed that additional rate hikes would be appropriate. The prospect of rates staying higher for longer was further backed up by economic data, with ISM’s services Purchasing Managers’ Index rising to 53.1 in June from 50.3, while ADP’s private sector payrolls figure was roughly double expectations. This data triggered a sell-off on Thursday, with the S&P 500 seeing its worst day since May.
Friday saw choppy trade on a mixed jobs report. Non-farm payrolls came in lower than expected, proving somewhat of a relief after ADP’s data, with the 209,000 jobs the lowest figure since December 2020. Meanwhile higher than expected wage growth pressured indices. For the week the S&P 500 slipped 1.2%, the Dow Jones dropped 2% and the Nasdaq declined 0.9%. Growth stocks fared better than value, helped by an advance in Tesla after the electric vehicle maker posted an 83% increase in deliveries in the second quarter. Treasury yields crept higher for the week on rate expectations. The 10-year Treasury yield ended the week above 4% for the first time in eight months, while the two-year yield had hit a 16-year high of 5.12% on Thursday.
Central bank concerns also weighed on European equities, with the pan-European STOXX 600 down 3.1%, driven by a steep loss logged on Thursday. Property and consumer cyclicals were some of the hardest hit given their interest rate sensitivity. There were some signs of easing price pressures, with eurozone factory gate prices falling and there was a moderation in consumer inflation expectations, but the European Central Bank has been hawkish recently, keeping the pressure on rates.
Japanese stocks also edged lower, with the Nikkei 225 taking a breather from its recent strong run. The index retreated from its 33-year high, falling 2.4% for the week. Yen moves continued to be watched, with growing speculation authorities may intervene in currency markets. Friday saw traders unwinding short positions, pushing the yen higher. Chinese equities posted modest losses for the week, with the Shanghai Composite falling 0.2%. Economic data releases continued to paint a downbeat picture of China’s economic rebound. Caixin’s PMIs for services and manufacturing activity eased, although remained in expansion.
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