Market reaction to US unemployment news, corporate and fundamental reviews
Market reviews
• Stocks ended the first week of September on a sour note. Major indexes posted significant declines and closed close to their session lows. The Dow Jones Industrial Average fell 1.0%, the S&P 500 ended down 1.7%, and the Nasdaq Composite Index fell 2.6%. Market participants reacted to the August employment report. The data showed that hiring in August was weaker than expected, and there were downward revisions to the July and June data, which showed 86,000 fewer jobs than previously reported. The unemployment rate fell slightly, and average hourly earnings increased 0.4% from the previous month, which should support consumer spending. The U.S. stock market came under significant pressure, with artificial intelligence stocks, GOOGL, META, AMZN, and TSLA leading the decline. Defensive sectors showed more resilient results.
Economic Data Roundup: Unrevised payrolls for August were 142K (165K consensus); previously revised to 89K from 114K. Unrevised private payrolls for August were 118K (142K consensus); previously revised to 74K from 97K. Average hourly earnings were 0.4% for August (0.3% consensus); previously revised to 0.2%. Unemployment rate was 4.2% for August (4.2% consensus); previously revised to 4.3%. Average workweek was 34.3 (34.3 consensus); previously revised to 34.2.
• The report was weak enough to trigger selling in a downbeat week for equities, but not enough to convince the market that the FOMC will cut interest rates by 50 basis points at its Sept. 17-18 meeting. The federal funds futures market now prices a 29.0% chance of a 50-basis-point cut this month, down from 41.0% before the data, according to CME's FedWatch tool. Negative sentiment was also fueled by a weak outlook in the semiconductor space. The PHLX Semiconductor Index (SOX) fell 4.5% after Broadcom's disappointing forecast. Other large companies also declined, leading the Vanguard Mega Cap Growth ETF to fall 2.1%.
The key takeaway from the report is that it was not as good as expected, but not as bad as feared. However, the report does show that hiring activity is slowing, which could lead to a slowdown in the economy.
The week ahead includes the August consumer price index report on Wednesday, the August producer price index on Thursday, and the University of Michigan's preliminary consumer sentiment survey for September on Friday.
• The 10-year yield is down two basis points today and 20 basis points for the week to 3.71%. The 2-year yield is down 10 basis points today and 28 basis points for the week to 3.65%.
S&P 500: +13.4% YTD
Nasdaq Composite: +11.2% YTD
Dow: +7.1% YTD
S&P Midcap 400: +5.7% YTD
Russell 2000: +3.2% YTD
• The US dollar initially fell on news about the labor market, but then began to rise. This led to a 1% drop in gold prices and a 4% drop in Bitcoin prices to $54,000. Oil prices also fell by 2%. Investors are concerned that the Federal Reserve will not have time to cut rates before the start of a recession in the US, so they prefer safe haven assets.
• China inflation data on September 9 did little to improve sentiment, as producer prices fell 1.8% instead of the expected 1.4% decline. The consumer price index (CPI) rose 0.6% year-on-year in August, with almost all of the gain coming from food, while other goods rose just 0.2%. The data is positive for continued global disinflation, but is unlikely to signal a long-awaited recovery in domestic demand, sending Chinese blue chips down 1.3%.
• The US CPI report for August is due out on Wednesday. Forecasts suggest the headline figure will slow to 2.6%, the weakest since March 2021 and well below the peak of 9.1%. The forecast range is 2.4% to 2.6%, suggesting downside risk. A weak reading could trigger calls for the Federal Reserve to cut rates by 50 basis points next week, which futures are now pricing in at 31%. A 25 basis point change is valued at 100%, with 112 basis points factored in for Christmas.
• Toyota has cut its 2026 electric vehicle production plans by a third, Nikkei reports. The Japanese company has become the latest automaker to scale back its electrification plans amid declining demand for EVs. Global sales of EVs, including all-electric and hybrid vehicles, increased 20% in the first half of 2024, below expectations, according to data firm Rho Motion.
• Qualcomm (QCOM) is exploring a possible acquisition of part of Intel's (INTC) PC chip business. Intel has been in trouble since the 13th and 14th-generation processors overheated during operation. The company's CEO recently took to Twitter to comment on the situation as its stock has fallen. Intel's stock has fallen so much that it may be kicked out of the Dow Jones Industrial Average. QCOM's stock has also fallen after the U.S. Senate launched an investigation into the company's ties to Russia. Intel is considering selling off part of its Mobileye business.
• US sanctions have not stopped chip shipments to China, the FT reports. Traders in Malaysia, Japan and Indonesia often send servers or chips to Hong Kong and then on to Shenzhen.
• The Securities and Exchange Commission (SEC) has charged Esmark's chief executive with falsely proposing to buy U.S. Steel because he lacked the financial strength to make the deal.
• The U.S. Treasury has collected $1.3 billion in unpaid taxes from wealthy tax evaders since last fall, part of a package of laws signed by President Joe Biden that takes effect in 2022.
• Saudi Arabia cut October oil prices for Asia amid growing concerns about falling demand.
• Citi believes that US election risk is currently holding back metals prices, as uncertainty around the November presidential election could dampen metals prices by dampening global risk appetite and possibly delaying government stimulus in China.
• A federal judge has rejected Coinbase's request to dismiss a class action lawsuit filed by shareholders who accused the exchange of reducing the likelihood of an SEC lawsuit.
• The $350 billion funds are subject to S&P's new index-capitalization rules and are due to be updated later this month.
• Broadcom shares fell after weak sales unrelated to artificial intelligence hurt the company's outlook. Shares of the chip supplier to Apple and other big tech companies fell after it issued a disappointing forecast.
TSMC has achieved productivity at its Arizona plant comparable to established fabs back home, a sign of the success of its U.S. project.
• Hathaway's Berkshire is again selling about $7 billion in Bank of America shares, remaining BofA's largest shareholder with about 11.1%.
• The financial indicators of the OnlyFans service for 2023 were: revenue - $6.6 billion (an increase of 18% compared to last year), content authors were paid $5.3 billion (80% of revenue), the service's own revenue was $1.31 billion. The number of authors reached 4.1 million accounts, and registered users - 305 million (an increase of 28% compared to last year). The service's profit was $650 million.
• Bloomberg reports that McDonald's left Russia due to pressure from the CIA. The company's management was against leaving, but the intelligence services initiated a "BoycottMcDonalds" campaign on social networks. As a result, the fast food giant suffered losses of about $50 million a month.
• According to a report by Surfshark, Apple is the most frequent user data sharer among major IT companies. Over the past 10 years, 82% of requests for data disclosure have been granted by the company. In contrast, Google and Meta have agreed to 73% of requests, and Microsoft to 67%. The most frequent data requests come from the US and EU authorities, which account for 58% of the total requests from 2013 to 2022.
• Bitcoin ETFs saw $706 million in outflows this week as Bitcoin's price fell to $53,304. The crypto market's fear and greed index fell to 23, indicating high investor anxiety.
• Google faces a second antitrust trial on Monday, the second time this year that the company will defend its business in court against the U.S. Justice Department. A judge has given U.S. regulators until December to propose penalties for Google's illegal search monopoly. A federal judge on Friday gave the Justice Department until the end of the year to decide how to punish Google for illegally monopolizing the Internet search market, and then prepare to present its case for penalties next spring.
• Renault CEO says industry could face billions in fines as electric vehicle sales slow. The European car industry could face 15 billion euros ($17.4 billion) in carbon dioxide fines due to slowing demand for electric vehicles, Luca de Meo said.
• The new iPhone will use Arm chip technology for artificial intelligence, according to the FT. Apple will hold its autumn event on September 9 at its headquarters in Cupertino, California.
• The U.S. will propose revisions to the Basel rules this month, according to Bloomberg. The changes could run up to 450 pages and include major changes to provisions for operational risks, including reducing the capital banks must allocate to businesses such as wealth management and certain credit card operations.
• U.S. regulators have approved BlackRock's $12.5 billion deal with Global Infrastructure Partners. Under the agreement, which was announced earlier this year, BlackRock said it would pay $3 billion in cash and about 12 million BlackRock shares to buy the large asset manager.
• Palantir Technologies, Dell Technologies and Erie Indemnity will be added to the S&P 500 Index as part of the latest quarterly weighting change.
• Carlyle-backed aviation services provider StandardAero files for US IPO
• The aftermarket industry is growing and in recent years several aviation equipment manufacturers have also entered this market as this business can generate high profits with lower capital investment.
Key events that could impact markets on Monday:
- Euro area Sentix index for September.
- Fireside chat with ECB Governor Elizabeth Makaul in New York.
International Reviews
• Trump has spoken about the importance of preserving the dollar as the world's reserve currency, a view echoed by a meeting of the nonpartisan Economic Club of New York. He noted that sanctions are a hindrance, and this sounds like a proposal to lift sanctions on Russia to strengthen the dollar's status. However, it is not entirely clear to me how this is connected and how Trump himself understands it.
• The US President's son, Hunter Biden, has pleaded guilty to all charges in a tax evasion case, the BBC reports. He is accused of evading taxes in the amount of $1.4 million between 2016 and 2019. The charge, in particular, is related to his work on the board of the Ukrainian gas company Burisma. Could this be why Ukraine is so slow to receive aid from the US?
• 2024 could be the hottest year since records began, according to the European climate change monitoring service Copernicus. The researchers noted that the previous heat record, recorded in the summer of 2023, was exceeded, and 2024 is likely to be the warmest year in the history of meteorological records.
• Judge Tanya Chutkan accused Donald Trump's lawyers of trying to block the release of potentially important evidence related to his efforts to overturn his 2020 election loss, The Hill reports, but Chutkan acknowledged that the case will not go to trial until November 5.
• According to BILD, Hamas outlined its strategy for negotiations by manipulating the international community and putting pressure on the families of the hostages, which also exhausts Israel. The document was found on a computer believed to belong to terrorist leader Yahya Sinwar, who is believed to have approved its contents. The letter is dated spring 2024.
• Conor McGregor is set to run for President of Ireland in 2025. He has threatened to dissolve the Irish Parliament unless it provides the people with answers.
• A scandal has arisen in Canada over a documentary that “whitewashes” the reputation of the occupiers. Following the premiere of the Russian film “Russians at War” at the 81st Venice Film Festival, for which the Canadian government allocated $340,000, director Anastasia Trofimova is planning to show the film in Toronto. The distribution of this film, aimed at “whitewashing” the reputation of the occupiers and destroying “stereotypical ideas” about them, has caused discontent among Ukrainian congressmen in Canada.
• US intelligence officials say Russian propaganda network RT is trying to persuade US voters to back Donald Trump in the election, a senior intelligence official said could indicate foreign interference in the presidential election.
• Mongolia must explain why it did not arrest Putin during his visit. ICC chief prosecutor Karim Khan said negotiations were underway at the court level. Judges could make recommendations if there was a lack of cooperation, but he did not want to predict anything because the matter was being decided between the judges and the Mongolian government.
• The Israeli army is preparing offensive operations on the Lebanese front, said IDF Chief of Staff Lieutenant General Herzi Ha-Levi.
• The Pentagon reported an increase in the production of ammunition. The US invested $5.3 billion in expanding its production capacity.
• Falling gas prices could boost Kamala Harris's standing with voters who blame the White House for high gas prices. A poll found that about a third of voters in key states said fuel prices were the biggest economic issue, with gas prices at their lowest in 3 1/2 years.
• The German government is tightening its migration policy, and the opposition is proposing even tougher measures. Following the terrorist attack in Solingen, Chancellor Scholz set up a cross-party working group to address migration issues. The aim is to tighten migration and security policies, including ending financial support for refugees who must apply for asylum in other countries under the Dublin Regulation, and increasing the number of deportations.
• Chinese Vice Commerce Minister Wang Shouwen said a modern, populous China was an opportunity, not a threat, to the United States during trade talks in Tianjin co-chaired by U.S. Deputy Commerce Secretary Marisa Lago, the second this year.
• China's foreign exchange reserves rose to their highest level in 8.5 years in August, largely due to the overall weakening of the U.S. dollar. Reserves increased by $32 billion to $3.288 trillion, the second consecutive monthly increase and the highest since December 2015.
• Biden aides are working on a proposal to create a U.S. sovereign wealth fund that would allow investments in national security interests, including technology, energy and critical supply chains.
• California Governor Gavin Newsom vetoed a bill that would have provided government-backed home loans to undocumented immigrants.