Weekly Market Update 2019 05 07

US Jobs Surge

Last week US non-farm payrolls rose 263,000, comfortably above market forecasts of 190,000 and ahead of previous months. The tightness in the labour market also continued to drive wage growth, with average hourly earnings up 3.2% year on year, consistent with the previous month and ahead of inflation. However, headlines were grabbed by the sharp fall in the unemployment rate to 3.6% from 3.8%, marking a 49-year low. While the increase in employment clearly contributed to this figure, it was mostly impacted by nearly 500,000 people leaving the labour force. As this is particularly volatile month-on-month, it is difficult to read too much into the headline figure without understanding the underlying drivers. Market observers will be closely watching future releases to determine if this is a new trend or a one-off.

Trade war returns

Markets were taken by surprise over the long weekend as Donald Trump announced that the US was planning to increase tariffs on $200bn of Chinese imports as early as Friday. US officials noted that there had been a breakdown in trade talks and accused China of reneging on prior commitments. Global markets had become comfortable in the expectation that an agreement was going to be reached at some stage and the threat of a breakdown has brought the issue back into the limelight. However, given previous episodes, the threat may be worse than the reality, and this is merely a negotiating tactic to extract final concessions from the Chinese.

Eurozone PMIs remain weak

Data released last week showed that the Eurozone economy continues to struggle. Purchasing Managers Indices (PMIs) for the European manufacturing sector were 47.8 in April. Anything below 50 indicates a contraction. The figure was dragged down by the dominant German economy which posted a 44.5 which was below expectations although above the previous month of 44.1. Nevertheless, the surveys pointed to an improving picture going forward as European producers are supported by a healthier global economy. The UK also saw a slight improvement in PMI data as the postponed Brexit date lifted some of the impending uncertainty from companies and individuals.

Market Data*

Index Open Close Change % Change
FTSE 100 7495 7380 -115 -1.53%
S&P 500 2900 2932 32 1.10%
Dax 12222 12286 64 0.52%
Cac 40 5580 5483 -97 -1.74%
Nikkei 225 22200 22258 58 0.26%
UK 10 Year Gilt Yield 1.2 1.22 0.02 1.67%

*Market data from 23-04-2019 to 06-05-2019