WEEKLY SUMMARY: Slowing US wages & slumping ISM sparked a rally
An encouraging US jobs report pushed the major US equity indexes higher for the week – although we note that trading volumes were subdued. After a poor start of the week, Friday’s official payrolls report from the Labor Department appeared to turn sentiment back in a positive direction by raising hopes that the economy could be on its way to a “soft landing”. Nonfarm payrolls rose by 223,000 in December, the smallest increase in two years but above expectations. The separate household survey showed that unemployment fell back to its post-pandemic low of 3.5%. Average hourly earnings cooled down, rising 0.3% MoM in December, a tick below expectations. Friday also brought news that the Institute for Supply Management’s index of services sector activity fell to 49.6, well below consensus and into contraction territory (below 50) for the first time since May 2020, as new orders slowed sharply. This batch of softening data sent both short- and longer-term U.S. Treasury yields sharply lower on Friday, leaving the yield on the 10-year note down over 30 basis points for the week. Shares in Europe surged as data indicated that the pace of inflation has slowed. The cost of natural gas also fell to levels last seen before Russia invaded Ukraine. Chinese equities rose amid reports that Hong Kong would reopen its border to mainland China and that Beijing was considering relaxing curbs on borrowing for the ailing property sector. Gold soared to $1875 while oil tanked.