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LGT Navigator: Breakdown on Wall Street – US labor market report in focus

May 6, 2022

On Wall Street, the stock indices suffered heavy losses yesterday. After the initially positive reaction to the Fed's interest rate decision, stock investors got weak knees, probably due to interest rate and economic fears and a sharp rise in US bond yields.  From Washington, we expect the latest figures on employment trends in the United States this afternoon. So far, the solid labor market development and the increasing wage pressure for the Federal Reserve is an argument to raise interest rates further. Great Britain's central bank tightened its monetary policy as expected and raised its key interest rate, in the fight against rising inflation, for the fourth time. 

US labor market report in focus

After the strong recovery in midweek and the further interest rate hike by the Federal Reserve, which was received by investors emphatically calm, prices collapsed yesterday in New York. Trigger may have been, among other things, the rise in yields for ten-year US government bonds to over 3%, respectively, to 3.07%. The Dow Jones Industrial shot -3.12% lower at 32'997.97 points. The S&P 500 lost -3.56% to exit Thursday's trading at 4'146.87 points. Volatility in the S&P 500 increased by more than 20%. The strongest losses were suffered yesterday by the technology exchange Nasdaq, where the indices sank by about -5% and fell to the lowest level in just over a year. Apart from Tokyo, the slump continued on Asia's stock exchanges. The Hang Seng Index in Hong Kong led the losses in the region, falling around -3.5%, and in mainland China the Shanghai Composite slipped around -2.3%. 

The focus today is the monthly US labor market statistics. Analysts on average expect continued strong job growth of +391'000 new jobs created in April. The previous month saw +431'000 new jobs created. However, the latest data from the private employment services provider ADP or also the weekly reported initial claims for unemployment insurance pointed to somewhat weaker than expected job growth in April.

Bank of England raises key interest rate again

Like the US Federal Reserve before it, the UK central bank raised its key interest rate once again, stepping up the fight against the sharp rise in inflation. At 25 basis points, the Bank of England's rate hike was more moderate than that of the Fed, but the British interest rate hike was the fourth in a row. The move had been expected on the capital markets. At +1.0%, the Bank of England's key interest rate is now at its highest level since 2009.

ECB under increasing pressure

The interest rate tightening by the US and British central banks is also increasing the pressure on the European Central Bank (ECB) to soon initiate the interest rate turnaround to decisively counter the strong rise in inflation in the eurozone – the inflation rate most recently reached +7.5% in April. The ECB has already decided to phase out its multi-billion bond purchases more quickly and several members of the ECB Governing Council had recently put a first rate hike in July into play.

European firms in China suffer from corona lockdowns

According to the European Chamber of Commerce in Beijing, the strict Covid-19 measures in important economic centers in China are having an increasingly negative impact on European companies in the People's Republic. In a recent survey, three quarters of the companies surveyed confirmed that the strict lockdowns are having a negative impact on their business. As a result, 60% of the companies have already reduced their sales forecast in China for the current year. Furthermore, for 78% of the companies, China has become less attractive as an investment destination.

Economic Indicators May 6

MEZ Country Indicator Last period
07:45 SZ Unemployment Rate (April) 2.2%
08:00 GE Industrial Production (March, m/m) +0.2%
11:30 GE Bundesbank President Nagel speaks
14:30 US Non-Farm Payrolls (April) +431,000
14:30 US Unemployment Rate (April) 3.6%
14:30 US Average Hourly Earnings (April, y/y) +5.6%

 

Earnings Calender May 6

Country Company Period
GE Adidas Q1
FR Scor Q1
NL ING Q1 
IT Intesa Sanpaolo Q1
US Cigna Q1 

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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