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LGT Navigator: Strong US jobs market dashes hopes of more moderate interest rate steps

December 5, 2022

Continued robust employment growth in the United States and rising wages have diminished hopes previously nurtured by Federal Reserve Chairman Powell of a more moderate course of interest rate hikes. The Fed may thus be forced to pre-empt renewed stronger inflation with another “jumbo” rate move before the year end. While on Wall Street the prospect of further hefty interest rate hikes put pressure on stocks, hopes of easing China's corona policy set positive accents on Asia's equity markets. 

Strong US jobs market dashes hopes of more moderate interest rate steps

Before the weekend, the surprisingly strong labor market report from the US initially put pressure on share prices. By the close of trading, however, the Dow still saved itself in positive territory. The Dow Jones Industrial ended the week at 34,429.88 points (+0.1%). The S&P 500 closed at 4,071.70 points slightly lower than the previous day (-0.12%). On the Nasdaq, the indices fell by about -0.4%.

The prospect of further sharp interest rate hikes let the yield on ten-year US government bonds climb to 3.61% on Friday. At the start of the week, however, the benchmark yield fell back to 3.51%. The US dollar benefited briefly from the strong American labor market report, but then had to give up its gains again and is now quoted against the euro at around 1.0570.

Hope for easing in China provides tailwind for Asia's stock markets

Shares in the Asia-Pacific region rose at the beginning of the week, in some cases strongly. The background is certain easing of China's strict pandemic policy. Beijing eased regulations on virus testing in some cities, which was interpreted as an indication of a broader easing of strict restrictions. In Hong Kong, the Hang Seng rose about +3.5%. The Hang Seng Tech index even by about +6.5%. On the Chinese mainland, the Shanghai Composite rose by +1.5%. In Tokyo, the Nikkei 225 quoted a moderate plus of +0.15%. MSCI's broadest index of Asia-Pacific equities outside Japan rose 1.7%. Strategists at Morgan Stanley upgraded their rating on Chinese equities to “overweight” over the weekend. The upgrade marks the end of the US bank's equal-weight stance on China stocks, which it had maintained for nearly two years.

Employment growth in the US remains solid

Despite the Federal Reserve's aggressive efforts to slow employment in the labor market with aggressive rate hikes to combat inflation, so far, they do not appear to be having the desired effect. For example, employment growth in November was stronger than expected. Accordingly, 263,000 new jobs were created last month, while economists had forecast an average gain of 200,000 nonfarm payrolls. Although the previous month's figure was revised slightly downward, the +283,000 jobs reported for September illustrate the consistent strength of the US labor market. The unemployment rate remained unchanged at a low 3.7% in November. At the same time, wages rose more strongly than expected in November. On average, hourly wages increased by +5.1% compared with the same period a year earlier. Economists had expected a much lower increase of +4.6%.

Easing inflationary pressure at euro-area producer level

The rise in producer prices in the eurozone slowed significantly more than expected in October. According to Eurostat, the statistics office, producer prices rose by +30.8% (consensus +31.7%) on an annual basis. The background to this is a significant weakening of the rise in energy prices. In October, these were just under +66% higher than in the prior-year period, compared with an increase of +108% in September.


Economic Indicators December 5

CET Country Indicator Last period
08:45 FR Industrial Production (October, m/m) -0.8%
09:15 ES PMI Services (November) 49.7
09:45 IT PMI Composite (November) 45.8
09.50 FR PMI Composite (November) 48.8
09.55 GE PMI Composite (November) 46.4
10:00 EZ PMI Composite (November) 47.8
10:30 UK PMI Composite (November) 48.3
10:30 EZ Sentix Economic Indicator (December) -30.9
11:00 EZ Retail Sales (October, m/m) +0.4%
15:45 US PMI Composite (November) 46.3
16:00 US ISM Non-Manufacturing PMI (November) 54.4

Earnings Calender December 5

Country Company Period
GE Deutsche Boerse Periodic review DAX composition


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