Stocks picked up through the week on rate cut hopes amid weaker labour market data. US job openings fell to their lowest level in 10 months in July, while the ADP private employment report came in lower-than-expected. The most anticipated data came on Friday with the non-farm payrolls report painting a similar cooling picture, with US employers adding just 22,000 jobs in August. This was much below estimates of 75,000 and cemented expectations that the Federal Reserve will cut interest rates in September, with an outside chance of a 50 basis point cut.The S&P 500 and Dow Jones Industrial Average initially hit fresh record highs, however subsequently pulled back as investors weighed the weaker economic outlook and whether Fed action would be enough.
For the week the S&P 500 ended 0.3% higher, with sector performance mixed. Energy was the notable laggard following oil prices lower, while communication services outperformed which was supported by strength from Alphabet following a long-awaited antitrust ruling coming in less severe than expected. The Dow Jones was down 0.3% while the tech-heavy Nasdaq Composite ended 1.1% higher. Treasury yields moved lower overall, owing to the weak jobs data. The 30-year yield had briefly touched 5% on Tuesday but pulled back to end the week at 4.77% while the 10-year yield was down to 4.09%.
European yields showed some signs of stabilisation on the growing expectations of Fed rate cuts, but still came under pressure on debt concerns. Earlier in the week the yield on the 30-year French government bond rose to its highest level in over 16 years, up at 4.5%, while the UK 30-year Gilt had jumped to its highest point since 1998 before easing as the week progressed. For equities, the pan-European STOXX 600 ended the week 0.2% lower, while regional performance was mixed. The UK FTSE 100 was up slightly, while France’s CAC 40 fell 0.4% ahead of Monday’s no confidence vote. Eurozone inflation rose 2.1% in August, edging marginally above the European Central Bank’s 2% target and reinforcing expectations of no rate cut at its next meeting.
Japanese equities logged gains for the week, with the Nikkei 225 up 0.7%. Japanese government bond yields also eased and the yen weakened against the US dollar. Stocks, particularly autos, received a boost after President Trump signed an executive order to implement lower tariffs on Japanese automobile imports and other products, while Japan will invest $550bn into US projects. The Hang Seng gained 1.4%, with Alibaba’s Hong Kong listed shares surging on Monday following its quarterly earnings, whereby artificial intelligence helped lift its cloud computing business. In contrast the Shanghai Composite dipped 1.2%, pulling back from its recent rally and growth concerns creeping in.