Week to forget for global stock marketswith Piazza Affari being one of the worst performing lists in the week just ended. Friday closed with a heavy decline of 2.55% on the FTSE MIB, which brought the decline of the last seven days to above 5%. Letter also on Frankfurt, which recorded a significant decline of 2.33%, on London, with a clear disadvantage of 1.31%, and Paris, with a decline of 1.61%.
The sales were driven by fears of an excessive slowdown in the American economyafter disappointing labor market data in the afternoon, and uncertainty over rate cuts. The technology sector fared poorly, suffering from the announcement by US giant Intel of a major cost-cutting plan and the suspension of future dividend payments.
US data
US macroeconomic data in recent days have raised some concerns about the resilience of the economy and instilled doubts that the Fed waited too long to cut rates. First the unemployment benefits on Thursday, with 249 thousand new requests: there is a fairly strong seasonal element, but the figure is still 13 thousand above expectations and close to the highest levels of the last twelve months. Then theISM Manufacturingwhich came out at 46.8 points against expectations for 48.8 points, moreover with the price component higher than expected: therefore manufacturing production falls despite the higher price levels, the worst of the combinations.
The July US labor market report was released on Friday, highlighting the progress made in rebalancing labor supply and demand: the unemployment rate rose to 4.3% from 4.1% in June (a year ago it was 3.5%), against expectations of stability. new non-agricultural jobs stood at 114 thousand compared to the 175 thousand expected, with a downward revision of the June result from 206 thousand to 179 thousand. Hiring therefore remained below the average of the last 12 months (215 thousand), while wage dynamics showed new signs of slowing, with the average hourly wage up by +0.2% m/m compared to +0.3% in June.
The data has fueled concerns that the Fed is keeping rates high for too long. According to Tiffany Wilding, Economist at PIMCO, this publication “consolidates a Federal Reserve rate cut in September and increases the risk that the Fed will revise its forecast to indicate a faster pace of future cuts. Negative economic momentum could certainly feed into itself, and we will be watching a broader set of data for clues. The next jobs report and any recovery from July’s weakness will be key in setting the stage for the Fed’s September meeting.”
Japan and tech
Two other important topics of the week were what happened in Japan and in the technology sector. On Wednesday, the Bank of Japan raised the cost of money for the second time in 17 years, in an effort to normalize monetary policy in the world’s fourth-largest economy. Specifically, it raised its key interest rate to “about 0.25%” from a previous range of 0% to 0.1%. It also outlined a plan to dismantle its massive bond-buying program, as it steps away from a decade of stimulus measures. On Friday, the Nikkei posted its worst daily decline since the pandemic, closing at -5.81%.aggravated by the strengthening of the yen which risks damaging exports, in addition to statements from the BoJ which suggest a high probability of further rate hikes in the autumn.
Wednesday was a strong day for the chip-related stocks. Nvidia closed the session at +12.8%, while Broadcom at +12%, after Microsoft’s indications that it will increase investments in artificial intelligence because it aims to increase profitability thanks to AI. On Thursday evening, the not-so-brilliant quarterly results of Amazon and Intel (which collapsed in the session on Friday with a dividend cut and layoffs) were added. Apple fared a little better, reporting overall positive accounts.
The Fed’s decision
The Federal Reserve on Wednesday left Fed Funds rates unchanged in the range of 5.25-5.50% for the eighth consecutive meeting, as widely expected, in a unanimous vote, for the seventeenth consecutive meeting. The statement indicated that “the Committee is alert to risks on both sides of its dual mandate” (price stability and full employment), while previously it had said that bankers were “very alert to inflationary risks”.
During the press conference, some aspects emerged that strengthened the expectation of a cut in a month and a half. First of all because it was explicitly stated by the President Jerome Powell: “If all the data, the evolution of the outlook and the balance of risks are consistent (…) the rate cut could be at the September meeting”. Secondly, because, although the risks are balanced in both directions, there has never been such an explicit statement that “the downside risks to unemployment are real now”. It also emerged that the possibility of a cut was even discussed at this meeting, despite “a large majority preferring not to move now”.
