CMC Markets Weekly Report
Stocks in the U.S. jumped in a choppy trading session Friday, extending gains heading into the close, after a strong jobs report indicating an improving U.S. economy offset worries about a sooner-than-expected end to Federal Reserve bond buying.
Stocks in the U.S. jumped in a choppy trading session Friday, extending gains heading into the close, after a strong jobs report indicating an improving U.S. economy offset worries about a sooner-than-expected end to Federal Reserve bond buying.
The Dow Jones Industrial Average climbed back above the 15,000 level, finishing at 15,135.84 at the final bell. The S&P500 and the Nasdaq were also strongly higher closing 1% higher to 1,631.89 and 3,479.38 respectively.
The U.S. economy created 195,000 new non-farm payroll jobs in June, the Labour Department reported, after an upwardly revised 195,000 jobs were created in May. The unemployment rate was unchanged at 7.6 percent as more people entered the labour market.
The dollar jumped to a three-year high and 10-year Treasury yields pushed above 2.70 percent given the stronger data and growing anticipation of Fed tapering.
Markets had been awaiting the jobs report for clues as to when the Federal Reserve would begin reducing its bond purchases. The Fed has said it expects to end its $85 billion monthly asset purchases when the unemployment rate drops to around 7 percent.
While the U.S. central bank may be closer to pulling back on the bond purchases, both the European Central Bank and the Bank of England offered forward guidance on policy for the first time, and said record-low interest rates would be maintained for a prolonged period.
In commodity markets, oil prices shot higher, buoyed by optimism for a strengthening U.S. economy after a better-than-expected job growth report. New York�s main contract, West Texas Intermediate (WTI) light sweet crude for August, on Friday surged $US1.98 to $US103.22 a barrel, its highest close since May 2, 2012. In London trade, Brent North Sea crude for delivery in August soared $US2.18 to settle at $US107.72 a barrel.
Gold and silver futures fell as investors feared that an upbeat U.S. jobs report would pave the way for the Federal Reserve to taper off its stimulus efforts. Gold for August delivery, the most active contract, on Friday settled $US39.20, or 3.1 per cent, lower at $US1,212.70 an ounce on the Comex division of the New York Mercantile Exchange. Silver for September delivery fell 96.4 U.S. cents, or 4.9 per cent, to $US18.736 an ounce.
Industrial metals on the London Metal Exchange (LME) closed drastically lower after U.S. jobs data sent the U.S. dollar surging, stoking fears that commodity-supportive U.S. stimulus may be tapered soon. At the close of open-outcry trading, flagship metal copper was 2.3 percent lower than the previous day�s settlement price at $US6,789 a metric ton. Aluminium closed 2.4 percent lower at $US1,768 a ton.
The Aussie dollar was weaker, trading almost a full U.S. cent below Friday's local close. The local unit was buying 90.51 U.S. cents, down from 91.42 U.S. cents. It was also buying 91.61 yen, 70.64 euro cents and 60.79 British pence.
In the week ahead, ANZ job advertisements kicks off the week followed by NAB's monthly business survey for June on Tuesday. Wednesday we can expect Westpac/Melbourne Institute Survey of Consumer Sentiment, Thursday its ABS labour force data for June and Friday rounds off the week with ABS Housing finance for May.
In the U.S., consumer credit data is issued tonight followed by minutes of the FOMC meeting on Wednesday and June PPI and consumer confidence on Friday.
Frequently Asked Questions about this Article…
The June U.S. non‑farm payrolls showed 195,000 new jobs and an unchanged unemployment rate of 7.6%, which helped lift U.S. stocks in a choppy session. The Dow climbed back above 15,000 to finish at 15,135.84, while the S&P 500 and Nasdaq closed about 1% higher. Everyday investors should care because stronger jobs data raises expectations the Federal Reserve could start tapering bond purchases, a shift that can push yields higher and change the outlook for different asset classes.
The Labour Department reported 195,000 new non‑farm payroll jobs for June, with May revised up to 195,000 as well, and the unemployment rate steady at 7.6% as more people re‑entered the labour market. The Fed has said it expects to end its $85 billion monthly asset purchases when unemployment drops to around 7%, so stronger jobs numbers make markets more likely to anticipate tapering of Fed bond purchases.
The stronger jobs report made markets think the Fed could be closer to reducing its $85 billion monthly asset purchases, though the article doesn’t announce a Fed decision. Anticipation of tapering tends to push Treasury yields and the U.S. dollar higher and can weigh on interest‑sensitive assets such as gold and some commodities.
The U.S. dollar jumped to a three‑year high and 10‑year Treasury yields rose above 2.70% after the stronger jobs data, reflecting growing market expectations that the Fed may begin to pull back on its stimulus sooner than previously thought.
Oil prices rose sharply on optimism about a stronger U.S. economy—WTI for August closed at US$103.22 a barrel (up US$1.98) and Brent at US$107.72 (up US$2.18). By contrast, gold and silver fell—gold for August settled down 3.1% at US$1,212.70 an ounce and silver for September fell about 4.9% to US$18.736—largely on concerns that Fed tapering would reduce stimulus. Industrial metals also dropped: LME copper fell about 2.3% to US$6,789/ton and aluminium closed down about 2.4% at US$1,768/ton.
The Aussie dollar weakened after the U.S. jobs report, trading almost a full U.S. cent below the prior local close. It was buying 90.51 U.S. cents (down from 91.42), and was also quoted at about 91.61 yen, 70.64 euro cents and 60.79 British pence.
In Australia the week includes ANZ job advertisements, NAB's monthly business survey for June, the Westpac/Melbourne Institute consumer sentiment survey, ABS labour force data for June and ABS housing finance for May. In the U.S. expect consumer credit data, the minutes of the FOMC meeting midweek, and June PPI and consumer confidence later in the week—these releases can move markets and help clarify the Fed’s timing on policy changes.
Stronger jobs data and talk of Fed tapering can mean higher bond yields, a stronger U.S. dollar, rising oil prices and pressure on gold, silver and some industrial metals. Everyday investors may want to review interest‑rate sensitivity in their portfolios, consider diversification across asset classes, and avoid knee‑jerk moves. If you need tailored guidance, consider speaking with a financial adviser to align any changes with your long‑term goals and risk tolerance.
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