Monday, February 6, 2023
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Monday market minutes: Keeping one’s head

Was Friday’s stronger than expected US jobs report for November a gentle nudge to markets and investors not to get ahead of themselves, a timely reminder that the idea of the Fed pivoting to lower and slower rate rises is not a given, and any notion that the central bank will halt rate rises is a foolish one?

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After evidence last week that inflation is easing and comments favourable to a slower and lower approach to rates from Fed chair Jay Powell, markets charged ahead before easing off Thursday, and then slid early on Friday after the strong jobs report. But they recovered ground late in the session to end on an upbeat note.

As a result, Markets still expect the Fed to raise its benchmark interest rate by 0.5% when it meets later this month but then the idea us that it will start a series of smaller and less frequent rises.

After being more than 350 points down in the morning, the Dow closed up 34.87 points, or 0.1%, at 34,429.88 points aa significant recovery in poise by investors.

The S&P 500 dipped 0.1% to 4,071.70, rebounding from an earlier loss of 1.2%.

The Nasdaq also made up ground to end nearly 0.2% lower at 11,461.50 points.

The tech-heavy index had dropped as much as 1.6% earlier in the day as investors looked at the jobs news as a big negative.

Also helping sentiment was more signs from China of a significant easing in its hardline approach to Covid controls, especially in the capital, Beijing and in southern provinces.

All three Wall Street indexes saw weekly gains, with the Nasdaq posting the largest increase at nearly 2.1%. The S&P 500 added 1.1%, and the Dow edged up by 0.2%.

As a result, the three major indexes also saw their first back-to-back weekly gains since October.

Besides the US gain, Eurozone shares rose 0.3% and Chinese shares gained 2.5% on the Covid easing story, but Japanese shares lost 1.8%.

The positive global lead saw Australian shares rise around 0.6% for the week and they are now down by just 1.9% for the year to date.

Bond yields mostly fell further (to around 3.494% for the 10 year bond), and oil, metal and iron ore prices rose.

The $A made it back above 68 US cents as the greenback fell.

Friday night saw the overnight ASX 200 Share Price Index trading close with a small gain of 19 points pencilled in for later today (Monday).


Friday’s jobs numbers had little impact on US interest rate expectations, with traders assigning a nearly 80% probability that the Fed would step slow to a half a per cent increase next week.

But while that might be the case, the Fed meeting in late January (January 31, February 1) will see more speculation about the size of the rise.

The central bank will have two inflation readings – consumer, producer and the so-called PCE measure favoured by the Fed, as well as another jobs/wages report for December in early January.

US jobs growth was much better than expected in November despite the Federal Reserve’s aggressive efforts to slow the labor market and tackle inflation.

Non-farm payrolls rose 263,000 last month while the unemployment rate was unchanged at 3.7%. That was stronger than market forecasts for an increase of 200,000 new jobs and a steady 3.7% jobless rate.

The monthly gain was slightly less from October’s upwardly revised 284,000 (from the original estimate of 261,000). A broader measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons edged lower to 6.7%.

But in a blow to the Fed’s anti-inflation efforts, average hourly earnings jumped 0.6% for the month and up 5.1% on a year-over-year basis, also well above the 4.7% outcome last month and the first rise in 9 months.

Another month of stronger than expected wage gains this month could very well see the Fed continue with 0.50% rises early in 2023.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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