Most major equity indices closed the week in the red amid an important week of economic data and a busy week of quarterly US earnings. A drop in the Institute for Supply Management’s (ISM) manufacturing index coupled with some worrying labour market trends had investors concerned that the US economy may be headed for a hard landing after all. Rising geopolitical risks also played a part as Israel prepares for potential reprisals from Iran and its allies after the assassinations of Hamas and Hezbollah officials. 

On Friday morning, the US saw its weakest growth in nonfarm payrolls since April, a gain of just 114,000, while the US unemployment rate rose to 4.3% - its highest level since October 2021. Bond yields soon began to fully price in a 0.25% cut from the US Federal Reserve in September and about 90% chance the base rate could drop as much as 100 basis points before the end of the year. Hurricane Beryl which recently hit Texas offers some speculation the data may be revised. Having held rates unchanged on Wednesday, US Federal Reserve Chair Jerome Powell acknowledged that cutting rates was discussed at Wednesday’s meeting and that a move to lower rates could come as soon as September. 

Meanwhile, a rate cut came through in the UK and a rate rise, somewhat surprisingly, in Japan.  The Bank of England’s policy rate cut to 5% on Thursday, a move of 25 basis points, was a close call as far as the voting pattern amongst committee members is concerned, with those voting to cut prevailing five to four.  On Wednesday, the Bank of Japan’s rate-setting committee voted seven to two to raise its policy rate by 15 basis points to 0.25%, sparking volatility in the Nikkei 225 index. 

In commodities, the oil price jumped higher in the immediate aftermath of the killing of Hamas’ political chief in Iran amid growing concerns about a broader Middle East war. However, the Brent crude index moved lower later in the week as worries about slowing global economic growth returned to the fore, leaving the price of a barrel of oil modestly lower over the course of the week.

Week Ahead

Source: Refinitiv Workspace, 05/08/24

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