Friday Roundup: US markets tumble while employment exceeds expectations in May; Oil takes another hit; What to watch for

by Market Updates and Alerts

390,000 jobs were created in the US economy, up from the projected 328,000;

The US stock market has already gone from plus to minus this morning. One of the main reasons for the market slump is news that Tesla CEO Elon Musk said the leading electric car company needs to cut staff in the face of a dismal economic outlook, according to an email sent to executives and seen by Reuters. The cuts would be around 10% of the workforce. He sent the notice the day after the ultimatum for employees to return to work.

The news prevented US index futures from sustaining the rise earlier in the day. Moments ago, in operations prior to the opening of the New York stock exchanges, Tesla shares fell 4.2%. Contracts on the Nasdaq 100, an index in which Musk’s company is a major player, were down 1%. US 10-year Treasury bonds carried higher premiums.

In Europe, stock markets started the day with no set course, but the Stoxx 600 gained strength. The London market is closed today for the holiday, so liquidity in international markets will be lower.

Payroll: job creation above expectations

The main event of the day, the most awaited by investors, was the release at 9:30 am of the employment report in the United States in May, the payroll: 390,000 jobs were created, above the average market projections that pointed to something between 328,000 and 332,000.

The unemployment rate remained at 3.6% (the projection was 3.5%), while hourly pay rose 5.2% from a year ago.

Other impact factors

Check-up

Combined with inflation, the US labor market data will give an idea of the health of the world’s largest economy and a clue as to how the Federal Reserve (Fed) will proceed with its policy of raising interest rates.

How to react?

In the face of so much uncertainty and instability, markets have reacted badly even when macroeconomic data are favorable, as they reinforce expectations that the Fed will raise rates more aggressively to tame inflation.

Yesterday, for example, US stocks rose sharply with the announcement that the country’s private companies added, in May, the fewest number of jobs since the economy began to recover from the pandemic. Corporate payrolls increased by 128,000 last month, well below the expected 300,000 and the 247,000 jobs added the previous month, according to the ADP Research Institute.

Seeing is believing

But key Fed officials appear to be reticent and inclined to continue rate hikes. Yesterday, Fed Vice Chair Lael Brainard said expectations of a 0.5 percentage point hike in rates this month and next are reasonable. For now, she sees no reason to suspend the central bank’s monetary tightening policy. “Right now it is very difficult to see the case for a break. We still have a lot of work to do to get inflation down to our 2% target,” she told CNBC.

Oil takes another hit

This morning, oil has returned to its devaluation course. The move is a reaction to the announcement, made yesterday, of a 50% increase in production by OPEC+. Oil supplies are expected to rise from the current 432,000 barrels a day to 648,000 in July and August, which tends to reduce pressure on prices.

Thursday’s numbers

Dow Jones (+1,33%), S&P 500 (+1,84%), Nasdaq Composite (+2,69%), Stoxx 600 (+0,57%), Ibovespa (+0,93%)

After starting the month in the red, the US stock market yesterday rallied as some economic data led investors to expect a less austere monetary policy from the Fed. Investors looked at private hires, which showed the smallest increase since the post-pandemic recovery began, and factory orders, which came in lower than expected.

What to watch for 

  • US: Government Payroll/May, Average Earnings per Hour Worked/May, Private Payroll/May, Unemployment Rate/May, Markit/May Composite PMI, Non-Manufacturing Business Activity ISM/May
  • Europe: Eurozone (Markit/May Composite PMI, Retail Sales/Apr); Germany (Trade Balance/Apr); France (Industrial Production/Apr, PMI Composite/May); Spain (Services/May PMI)
  • Latin America: Brazil (Industrial Production/Apr), PMI Composite Markit/May); Colombia (Producer Price Index/May)
  • Central banks: Statements by Lael Brainard (FOMC/Fed) and Andrea Enria (ECB)
  • Holidays: UK, China, Hong Kong