The US economy added 187,000 jobs in July while the unemployment rate declined to a low 3.5%, data released Friday showed. Equity markets looked as if they were about to finish the week strong after the labour data, but gains were erased late in the session.
The US Labor Department data showed that the unemployment rate was falling and wages were still growing, up 0.4% in July when compared with June or 4.4% higher than the same month a year ago. A total of 1.6 job openings per unemployed person are available in the US economy. Some investors see the resilience of the US labour market as a sign the world’s largest economy could pull off a soft-landing scenario, which entails only a moderate economic downturn as the US Federal Reserve (Fed) approaches the end of its fastest hiking cycle in decades. The strength of Friday’s labour data led some investors to the conclusion that the Fed may have room to continue its hiking cycle. The dollar index saw its biggest single-day drop in three weeks after the data came out but was slightly higher again on Monday.
In New York, stock indices fell in late trading after posting solid gains earlier in Friday’s session. At the start of the new week, markets were already looking ahead to Thursday’s US inflation data for signals about the Fed’s next steps. Investors expect core inflation to come in around 4.7%. On Friday, the Dow Jones Industrial ended the day down 0.43% to finish the week at 35,065.62 points and the S&P 500 lost 0.53%, closing at 4,478.03 points. The Nasdaq-100 dropped 0.51% to 14,274.92 points.
In Asia, stock markets were mostly down as traders awaited the US inflation data later in the week as well as Chinese trade balance and inflation data due on Tuesday and Wednesday, respectively. The macroeconomic data coming out of China will be studied for signals about the strength of the country’s economic recovery and whether the government could step in with more support. Hong Kong's Hang Seng Index was trading down 0.2% on Monday, while the Shanghai Composite lost 0.8 % in early trading. In Tokyo, the Nikkei 225 was trading roughly flat and South Korea’s Kospi was down 0.7%. In Australia, the S&P/ASX 200 was trading 0.3% lower.
Switzerland’s employment data released at the end of last week looked less rosy but still strong. Switzerland’s KOF Employment Indicator is falling during the third quarter of the year but remains in positive territory. The indicator came in at 10.5 point for the third quarter. It has been slowly falling since the second quarter of 2022 but is still ahead of its long-term average of 1.0 points. The banking, wholesale and manufacturing sectors showed poor outlooks and are likely to reduce staff in the coming months.
Over the weekend, Daimler Truck Chief Financial Officer Jochen Goetz died in an accident, according to a statement from the company.
Corporate news in focus: Q3 figures from Siemens Energy.
Economic data in focus: Swiss unemployment rate (07:45 CET), German industrial production (08:00), Swiss foreign currency reserves (09:00).
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi
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Explanation of investment recommendations for stocks
We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
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We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
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