Market commentary: Here comes the job report

On Friday, stocks markets were mixed with the European indexes mainly in positive territory, while US stocks plunged after the release of much stronger than anticipated job data.

The S&P 500 was down 1.42%, the Dow Jones Industrial Average shed 1.54% and the NASDAQ lost 1.11%. Overnight, Asian markets followed suit and all major indexes were in the red with the only exception of the Shanghai Index that posted a resilient +1.89% at the closing this morning.

The main catalyst for the selloff in US equities experienced on Friday was the closely watched Non-Farm Payroll Report that posted a monthly addition of 295,000 new jobs. The jobs report’s number, one of the best within the last few months, came in way above the expected 240,000 level and shows how the US economy and labor market are continuing to improve despite a stronger dollar and a likely slowdown in exports.

Unemployment also declined to 5.5% from a previous reading of 5.7% and ahead of estimations of 5.6%. This decline is particularly significant considering that the participation rate remained flat.

Although the report was clearly better than anticipated, wage growth once again disappointed and it is likely to take some steam out of the news, considering that the FED indicated to be moving away from jobs’ additions and to be adopting wage growth as indicator governing any interest rate hike’s discussion.

Nevertheless, following February’s strong job report, markets are now pricing in a higher probability to see interest rates rise in the short term, and if there should be a follow through within March and April jobs reports, the FED will be rather more inclined to go ahead with the hike in June rather than September or end of 2015.

Markets reacted accordingly, with investors taking profits from equities still at all-time highs and selling off US Government Treasuries, pushing the yield of the 10 years Benchmark to 2.23%, substantial higher form the multi-year low levels registered in January.

The Dollar also continued to appreciate on speculation that the FED will raise interest rates in one of the coming meetings, exacerbating the monetary divergence with Japan and especially Europe, where the ECB will materially start its QE purchases today. The Euro plunged 1.84% on Friday reaching the 1.0828, although it partially recovered in early trading this morning.

Another interesting news coming from US on Friday was the announcement from the Dow Jones that, as from the March 18th, Apple Inc will be added to the Dow Jones Industrial Average replacing AT&T. This move was made possible by the share spit undertook in June 2014, and is boosting the number and the influence of technology related companies in the renowned index.

Partially anticipated by some analysts, considering the unusual spit ratio of 7:1 chosen by Apple, this decision is sending the clear signal to investors that the technology sector is becoming ever more relevant in an era where technological gadgets dominate people’s lives from smartphones to electric cars, from computers to factory plants.

The addition of Apple to the Dow does not only reflect the raising importance of technology firms, but also Apple’s dominance as a major industrial powerhouse able to produce, assemble and ship millions of laptops, iPhones and tablets every month.

This article was issued by Paolo Zonno Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

More in Business Comment
Morgan Stanley to buy E-Trade | Calamatta Cuschieri
Business Comment
Calamatta Cuschieri
Franklin Templeton to acquire Legg Mason | Calamatta Cuschieri
Markets start the week strong | Calamatta Cuschieri
Business Comment
Calamatta Cuschieri
Japanese automaker’s earnings forecast | Calamatta Cuschieri