GLOBAL CAPITAL MARKETS OVERVIEW:
The Dow rose more than 70 points on Friday, while the S&P 500 and Nasdaq lost 0.2% and 0.5%, respectively after a U.S. jobs report showed higher-than-expected wage growth, which would keep the Federal Reserve aggressively tightening monetary policy. A closely watched report from the Labor Department showed the U.S. economy added 528,000 jobs in July 2022, well above Wall Street expectations. The data came after hawkish rhetoric from several Fed policymakers, making policy pivots more elusive as the central bank tries to cool an overheating economy. Bank and energy stocks rose while Tesla and other tech companies tumbled. The focus now shifts to next week's inflation data, with annual U.S. consumer prices expected to rise 8.7% in July after a 9.1% gain in June. The Dow fell 0.1% for the week, while the S&P 500 and the tech-heavy Nasdaq gained 0.4% and 2.2%, respectively. The S&P/TSX Composite closed up 0.2 percent at 19,620 on Friday, as major metals recovered and the heavyweight energy sector gained. On the other hand, tech stocks came under heavy selling pressure after strong U.S. labor data raised expectations that the Fed would not deviate from its tightening path. The increase in U.S. nonfarm payrolls more than doubled what the market had expected in July. Meanwhile, Canada's economy unexpectedly lost jobs in July for a second straight month, while the unemployment rate remained at a record low of 4.9 percent, leaving ample room for the central bank to continue tightening monetary policy to curb inflation. During the shortened trading week, the index fell about 0.4%. The ruble-based MOEX-Russia index tumbled in ensuing trade, closing at 2,057 on Friday, down 2.8 percent, its second lowest close since 2017, after the Moscow bourse announced it would allow data from next week to begin Foreign investors from "friendly" countries to buy and sell Russian stocks. The measures are expected to increase volatility as foreign investors cannot sell Russian stocks as authorities ban their listings following Russia's invasion of Ukraine. Technology stocks were the biggest losers, with shares in Yandex and Softline plunging 8.2% and 6.9%, respectively. Retailers also posted big losses, with O'Key down 7.5%. Meanwhile, Gazprom shares fell 4.5% as investors focused on the increasingly low probability that the Nord Stream II pipeline capacity would return to normal. London stocks edged to 7,440 on Friday after a strong U.S. jobs report sparked bets for further rate hikes by the Federal Reserve. It comes after the Bank of England raised its key interest rate by 50 basis points to 1.75% at its August 2022 meeting, the sixth hike in a row, pushing borrowing costs to the highest since 2009. Meanwhile, investors digested another batch of corporate performance at home and abroad. Capital, the business process outsourcing and professional services provider, fell more than 8% after it said its first-half pre-tax profit fell to £100,000 from £261.1 million last year, reflecting business exits and portfolio goodwill impairments. However, the index closed the week up 0.2%, its third straight weekly gain. European shares snapped a two-day winning streak on Friday, with Germany's DAX and the benchmark Stoxx 600 down more than 0.5%, as strong U.S. data sparked bets on further rate hikes by the Federal Reserve, investors again Concerned about rising interest rates. The U.S. economy grew by 528K, and the unemployment rate fell to 3.5%, according to data released Friday by the U.S. Bureau of Labor Statistics. In Europe, data showed unexpected increases in industrial output in Germany and France in June. Deutsche Post reported double-digit growth in revenue and earnings on the corporate front, while insurer Allianz reported a 23% drop in second-quarter net profit, missing expectations. The Stoxx 600 was down 0.6% for the week after two straight gains. Italy's FTSE MIB erased earlier gains to close at 22,590, down 0.2%, just below the previous session's eight-week high, as better-than-expected U.S. jobs data added to recent hawkish Fed bets. Concerns over higher borrowing costs weighed heavily on tech and consumer discretionary in Milan, with ST down 2.5% and Campari down nearly 4%. On the other hand, banks were supported by the prospect of higher credit costs and earnings on paper, with shares of BPER Banca surging nearly 10% after the company's earnings release. Also, Pirelli rose 4% after second-quarter profit topped analyst estimates and raised its revenue forecast for the coming year. On the data front, domestic industrial production fell 2.1% month-on-month, well above expectations for a slight decline of 0.2%. However, the index closed the week up 0.8%. Hong Kong stocks rose for a third straight session on Friday, boosted by industrial and property stocks, with the benchmark Hang Seng Index closing above 20,200. Much of last week's gains were driven by upbeat corporate results, while ongoing tensions between the U.S. and China over the Taiwan issue capped gains. Orient Overseas (International) and Semiconductor Manufacturing International were the two biggest gainers on the index, rising more than 7%. However, the benchmark index was largely flat for the week. On Friday, the Shanghai Composite rose 1.19% to close at 3,227 points, and the Shenzhen stock market rose 1.69% to close at 12,269 points, with mainland stocks erasing most of the losses caused by Sino-US tensions over Taiwan as expected. Semiconductor stocks rebounded as the government gave more support to the semiconductor industry to compete with other countries. Investors, meanwhile, reported that China fired a series of ballistic missiles into the waters around Taiwan as part of its massive military exercise after U.S. House Speaker Nancy Pelosi visited the island. Be cautious about this. Investors are also gearing up for key U.S. jobs data that could guide the outlook for U.S. monetary policy, as they fear a recession from sharp interest rate hikes around the world. Chipmakers and related companies outperformed Nora Technology (10%), Sanan Optoelectronics (8.3%), JCET Group (8.6%), Hangzhou Cela (10%), and Hangzhou Lion (10%). New Zealand NZX 50 was down 7 points, or less than 0.1%, at 11,728.47, reversing gains from the previous six sessions but still near a three-month high as market participants awaited the U.S. Monthly employment data will provide another clue to the health of the world's largest economy. Nonfarm payrolls are expected to increase by 250,000 jobs in July after adding 372,000 jobs in June. Traders also expected Chinese trade data for July to be released over the weekend while focusing on news of China's fire drills in the waters surrounding Taiwan after U.S. House Speaker Nancy Pelosi visited the island last week. Shares in Hamburg Fuel Group fell 7.5%, followed by Greenfern Industries (down 3.7%) and Winton Land Limited (down 2.7%). For the week, the index rose 2%, buoyed by upbeat U.S. earnings and growing hopes that the Federal Reserve may be less aggressive in raising interest rates due to fears of a recession. Japan Nikkei 225 gained 0.87% to close at a two-month high of 28,176, while the broader Topix index added 0.85% to close at 1,947, with both benchmarks edged higher for the week as investors It came through another volatile period with solid corporate earnings, mixed global economic data, hawkish Fed comments, and heightened U.S.-China tensions. Meanwhile, investors remained cautious following reports that a Chinese missile had landed in Japan's exclusive economic zone. Nearly all sectors rose on Friday, with notable gains from heavyweights such as Nintendo (3.1%), Tokyo Electron (2.8%), Toyota (1.5%), Fast Retailing (1.1%), and Sony Group (1.8%). Metal makers also rose strongly on upbeat quarterly results, including Nippon Steel (8.3%), Osaka Titanium (18.3%), and UACJ Corporation (21.7%). Australia S&P/ASX 200 rose 0.58% to close at 7016 on Friday, its highest level in nearly two months, and was on track for its third straight weekly gain, with mining and gold stocks rising despite losses in energy shares. Investors also took stock of the Reserve Bank of Australia's latest policy statement and forecast, with inflation expected to peak at around 7.75% this year and economic growth to hit 3.5%, down from an earlier forecast of 4.2%. Mining and gold stocks rose on firm metal prices, with BHP Billiton (1.7%), Rio Tinto (2.6%), Newcrest Mining (0.7%), Polaris Resources (3.1%), and Evolution Mining (3.4%) gaining. Clean energy-related names also increased, including Pilbara Mining (3.6%) and Core Lithium (6.2%).
REVIEWING ECONOMIC DATA:
Looking at the last economic data:
-CN: In July 2022, China's exports rose 18% year-on-year to $332.96 billion, beating market forecasts of 15% and up 17.9% a month earlier. This was the largest shipment increase since January, and logistics issues continued to ease as COVID-19 restrictions were further eased.
- CN: China's trade surplus unexpectedly soared to a record $101.26 billion in July 2022 from $55.89 billion a year earlier, well above market forecasts of $90 billion, largely due to a surge in exports. Shipments rose 18% year-on-year, the highest in six months, while imports grew at a much slower rate of 2.3%. Between January and July, the trade surplus was $482.3 billion.
- CN: In July 2022, Chinese imports rose 2.3% year-on-year to $231.7 billion, compared with a market forecast of 3.7% and a 1% increase a month earlier. This is the third consecutive month of increases in inbound traffic, with domestic demand gradually recovering after the easing of epidemic control. Purchases mainly increased in unwrought copper (9.29%), copper ores and concentrates (0.64%), and iron ore (3.08%). Meanwhile, rubber imports increased by 10.48%. In contrast, crude oil (down 9.48%), refined products (down 35.32%), natural gas (down 6.85%), coal (down 22.07%) and steel products (down 24.761%). In addition, purchases of soybeans (-9.1%), edible oil (-36.20%), and meat (-24.71%) were also lower. In the first seven months of the year, purchases were up 5.3% from the same period in 2021. Analysts said that imports are expected to rise slightly in the second half of the year as Beijing ramps up infrastructure spending.
- CN: In July 2022, China's foreign exchange reserves unexpectedly increased by $32.8 billion to $3.104 trillion, compared with market forecasts of $3.05 trillion. In July, the yuan fell 0.64% against the dollar, while the greenback gained 1.07% against a basket of other major currencies. Meanwhile, gold reserves fell from $111.82 billion at the end of June to $109.84 billion at the end of July.
- US: Consumer credit in the U.S. rose by $40.15 billion in June 2022, up from a revised $23.79 billion in the previous month and well ahead of market expectations for an increase of $25 billion. It was the largest monthly increase in consumer credit in three months, with non-revolving credit, which includes auto and student loans, rising $25.36 billion, while revolving credit, which includes credit card debt, rose $14.80 billion. In addition, consumer credit rose 10.5% year-on-year after an upward revision of 6.3% in May.
- CA: In July 2022, Canada's unemployment rate remained unchanged at 4.9%, the lowest level on record and below market expectations of 5%. The number of unemployed fell by 3,600 to 1,003,500, and the number of long-term unemployed fell by 23,000 to 162,000. However, employment in Canada unexpectedly fell by 30,600, with job losses for the second straight month. At the industry level, a decline in the production of the services sector (-0.3% to 15.5 million) offset an increase in the production of goods (+0.6% to 4.0 million). In addition, a decrease in the number of employees working in the public sector (1.2% to 4.3 million) was affected by an increase in the number of self-employed (1.1% to 2.7 million), while the number of private sector employees was little changed (0.1% to 12.6 million). As unemployment and employment declined, the labor force participation rate fell 0.1 percentage point to 54.4%. The decline in employment was mainly seen in Ontario and Prince Edward Island.
- TW: Annual inflation in Taiwan fell to 3.36% in June 2022 from 3.59% the previous month, below market expectations of 3.51%. Food (7.18% vs. 7.27% in June), Housing (3.03% vs. 3.36%), Transportation and Communications (2.95% vs. 3.54%), Education and Recreation (0.87% vs. 1.07%), and Miscellaneous Goods (0.85% vs. 1.27%) %) prices rose more slowly. The seasonally adjusted monthly consumer price rose 0.20% after rising 0.11% in the previous month.
- FR: French industrial production rose 1.4% in June 2022 from the previous month, after a revised 0.2% gain in the previous month, largely beating analysts' expectations for a 0.2% contraction. Manufacturing output rose 1.2% (1% in May), with machinery and equipment production up 3.5% and transport equipment up 2.8%. In addition, electricity, natural gas, steam, and air conditioning increased by 3% (vs. -4.9%). On the other hand, construction output fell by 1.9% (vs. 0.4%). As a result, industrial output rose 1.4% year-on-year, above a downwardly revised 0.3%.
- FR: Preliminary estimates show that employment in the French private sector rose by 102,500, or 0.5%, to 20.7 million in the second quarter of 2022, up from 69,500 in the previous three months. This was the eighth consecutive quarter of job creation growth, led by gains in market services employment (7,990) and industrial employment (310). On the other hand, construction did not add new jobs, while agriculture lost 0.1 thousand jobs. Employment rose by 529,500, or 2.6%, compared to last year's period.
- JP: In July 2022, Japan's foreign exchange reserves rose to $1,323,034 million from $1,311,254 million the previous month. Total reserve assets are divided into foreign exchange reserves ($1202.553 billion), IMF reserve position ($10.033 billion), special drawing rights ($58.68 billion), gold ($47.691 billion), and other reserve assets ($4.077 billion).
- SK: South Korea posted a $5.61 billion current account surplus in June 2022, remaining positive for the second straight month but still well below the surplus a year ago, as energy and commodity prices surged, and import bills remained high. The commodity account surplus fell to $3.59 billion, compared to $7.55 billion in 2021. The service account deficit was $490 million, up from $1.02 billion a year ago, due to a larger surplus in the transportation account. The primary income account surplus increased to $2.77 billion in June 2022 from $2.56 billion the year before. However, the secondary income account recorded a deficit of $260 million.
- AU: The Australian Industry Group's Australian Services Performance Index rose 2.9 points to 51.7 in July 2022, indicating an improvement in growth and the deterioration in the previous two months. Unbalanced dynamics continue to affect the services sector. Business and real estate, personal services, retail, and hospitality saw growth, while logistics, health, and community services saw sharp declines. Capacity utilization in the services sector increased to 80.3%, similar to the June result and above the long-term average. Customer demand in some industries remained strong, but higher input costs, labor shortages, and concerns about future demand weighed on services in July.
Today, investors will receive:
-JPY: Bank Lending y/y, Current Account, and Economy Watchers Sentiment.
- CNY: M2 Money Supply y/y, and New Loans.
- NZD: Inflation Expectations q/q.
- CHF: Unemployment Rate.
- EUR: Sentix Investor Confidence.
KEY EQUITY & BOND MARKET DRIVERS:
- IT: Global rating agency Moody's on Friday downgraded Italy's outlook to negative from stable. The resignation of Italian Prime Minister Mario Draghi shook the country's political landscape a few weeks ago. "Risks to Italy's credit profile have been building recently due to the economic impact of Russia's invasion of Ukraine and domestic political developments, both of which could have significant credit implications," Moody's said. As a result, the agency affirmed Italy's sovereign rating of Baa3. Standard & Poor's credit rating for Italy is BBB with a stable outlook. Fitch's credit rating for Italy was last reported on the BBB with a stable outlook. DBRS has a BBB (high) credit rating for Italy with a stable outlook.
- US: The 10-year U.S. Treasury yield jumped to 2.8% after new jobs data beat market expectations on multiple indicators, reinforcing bets that the Federal Reserve will continue its aggressive rate hike momentum. The U.S. economy added 528,000 nonfarm payrolls in July, more than double expectations, while the unemployment rate fell to 3.5% and wages rose 0.5%. Stronger labor market data added to recent hawkish rhetoric from Federal Reserve policymakers, who remain fully committed to curbing soaring inflation.
- US: Equity futures contracts linked to the three major indexes erased early gains and traded down about 1% on Friday after a U.S. unemployment report showed higher-than-expected wage growth that would keep the Federal Reserve aggressively tightening monetary policy. A closely watched report from the Labor Department showed the U.S. economy added 528,000 jobs in July 2022, well above Wall Street expectations. The data came after hawkish rhetoric from several Fed policymakers, making policy pivots more elusive as the central bank tries to cool an overheating economy. In regular trading on Thursday, the Dow and S&P 500 fell 0.3% and 0.1%, respectively, while the tech-heavy Nasdaq gained 0.4%. The S&P 500 and Nasdaq Composite were on track for their third straight weekly gain, while the Dow was on track for the full two weeks of gains.
- US: In July 2022, the U.S. unemployment rate fell to 3.5% from 3.6% in the previous period, the lowest level since February 2020, while analysts expect the unemployment rate to remain unchanged. Unemployment fell slightly to 5.7 million. Meanwhile, the labor force participation rate (62.1%) and the employment-to-population ratio (60.0%) were little changed during the month.
- US: Average hourly earnings for all private nonfarm payrolls in the U.S. rose 15 cents, or 0.5%, to $32.27 in July 2022, after rising 0.4% in the previous month, beating consensus estimates of 0.3%. In July, average hourly earnings for private-sector production and nonsupervisory workers rose 11 cents, or 0.4%, to $27.57 an hour. Average hourly earnings rose 5.2% over the past 12 months, the same as in June, and above the consensus forecast of 4.9%.
- US: The U.S. economy added 528,000 jobs in July 2022, much better than the market forecast of 250,000 and up from an upwardly revised 398,000 in June. The largest job gains were seen in leisure and hospitality (96,000), especially restaurants (74,000); professional and business services (89K), including corporate and business management (11K), construction and engineering services (11K), management and technical consulting services (12K), and scientific research and development services (10K); and health care (70K). Total nonfarm payrolls have increased by 22 million since bottoming in April 2020 and have returned to pre-pandemic levels. Private sector employment rose by 629,000 from February 2020, although several sectors have yet to recover. On the other hand, government employment remains 5.97 million below pre-pandemic levels.
- GE: In July 2022, new passenger car registrations in Germany fell 12.9% year on year to 205,911 as supply chain issues continued to limit vehicle production. New registrations for commercial owners fell 12.8 percent to 65.1 percent of total registrations, while new registrations for private owners fell 11.1 percent. Among German brands, Smart (down 85%), Ford (down 29.5%), Mercedes (down 23%), and Volkswagen (down 19.8%) fell the most, while Porsche (down 5%) was the only record-growing brand.
STOCK MARKET SECTORS:
- High: Energy, Financials, Materials, Real Estate, Industrials.
- Low: Communication Services, Consumer Discretionary, Information Technology, Real Estate, Consumer Staples.
TOP CURRENCY & COMMODITIES MARKET DRIVERS:
- USD: The U.S. dollar index jumped 0.8 percent to above 96.5 on Friday after a stronger-than-expected jobs report reinforced expectations that the Federal Reserve will curb inflation aggressively in the months ahead. The U.S. economy added 528,000 jobs in July, far better than consensus forecasts of 250,000 and up from an upwardly revised 398,000 in June.
- CNY: The offshore yuan was steady at around 6.75 against the dollar after hitting a two-month low of around 6.80 but was expected to remain volatile as traders focused on heightened tensions between the U.S. and China over the Taiwan issue. China reportedly fired a series of ballistic missiles into the waters around Taiwan as part of its massive military exercise after U.S. House Speaker Nancy Pelosi visited the island. As a result, the risk of escalation in the region is expected to keep the market on edge. Meanwhile, investors are awaiting next week's July trade, inflation and credit data from China for an insight into the state of the world's second-largest economy. Investors had mixed interpretations of the Chinese economy last week, with better-than-expected data on services sector activity in July and a surprise drop in manufacturing activity.
CHART OF THE DAY:
The Canadian dollar traded around $1.29 against the greenback, its weakest in two weeks, pressured by a stronger U.S. dollar and oil prices extending recent losses. Meanwhile, the latest data showed that the Canadian economy unexpectedly shed jobs for the second month, while the unemployment rate remained at a record low of 4.9 percent. Meanwhile, the average hourly earnings of long-term employees closely watched by the Bank of Canada rose 5.4 percent in July from a year earlier, slightly down from 5.6 percent in June but well above the 2.4 percent at the start of the year. At the same time, the central bank is expected to continue its tightening cycle and may raise interest rates further by the end of the year. The Bank of Canada surprised markets by raising its benchmark interest rate by 100 basis points in July while signaling further tightening to curb sky-high inflation. In June, annual inflation topped a 39-year high but rose less than market expectations.
- USDCAD - D1, Resistance around ~ 1.32048, Support around ~ 1.25235