US stock markets fall on stronger than expected jobs data

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The United States added 390,000 nonfarm payrolls in May, well above expectations, and wages rose solidly, justifying hawkish comments from the Fed. Federal Reserve Vice Chairman Lael Brainard said Thursday that there was currently no reason to consider pausing rate hikes in September. Stocks on Wall Street fell and government bond yields rose on the news.

The benchmark 10-year US Treasury yield climbed to +2.94%, its highest level in two weeks (+20 basis points). The blue-chip Dow fell -0.94% in the shortened week and -9.46% in the first five months. The S&P 500 lost -1.20% and -13.80% over the year. The tech-heavy Nasdaq lost -0.98%, taking its year-to-date performance to -23.22%, with rate-sensitive growth stocks bearing the brunt of the sell-off.

European stock indices followed suit. The MSCI EMU fell -0.77% (-12.31% over the year). The FTSE 100 was down -0.69%. So far this year, it should be noted that the Footsie is still in positive return territory (+2.01%), driven by the oil majors.

Unlike the United States, Asian markets surged higher. Chinese stocks rebounded as Shanghai ended its two-month Covid-19 lockdown amid supply chain disruption. Although it was not the end of the zero Covid policy that had a negative impact on China’s economic output, the Shanghai Composite gained +2.08% (-12.21% YTD). The Nikkei 225 closed up +3.66% at 27,761.57 (-3.58% year-to-date), extending its winning streak to three weeks on the heels of shares in Fast Retailing ( up +7% week-on-week – first component of the Nikkei 225). The holding company that owns Uniqlo reported strong domestic sales. Japan is a contrarian game in 2022, outperforming most other stock markets year to date.

Energy remains the undisputed sector leader in the S&P 500

The recent rally did not last long. Was this another dead cat bounce? Eight of the 11 major S&P sectors ended the week in the red.

Once again, health was the worst performer (-3.14%) with biotech stocks plummeting. They ended May the same way they started the year, getting hammered (S&P Biotechnology Select Industry Index down -43.63% YTD).

Financials was also one of the biggest drags (-2.14%) on the broader market, with remarks on the economy from JPMorgan CEO Jamie Dimon and Goldman Sachs COO John Waldron raising concerns. worries about a global slowdown. The bear market can still wreak havoc. Even the most defensive sectors fell over the week (basic consumption down -1.72%, utilities down -1.38%).

On the other hand, industrials (+0.04%) and consumer discretionary (+0.01%) stalled. The lone winner in a broad market plagued by fears of stagflation was energy (+1.18% WTD, +60.13% YTD) as oil prices rose for the sixth consecutive week (WTI crude oil (Nymex) up +3.30% to $118.87 a barrel).

End of the bond rally

Interest rate jitters continue to hammer global bond markets. Treasury yields rose across the board. In the wake of the American 10-year T-note, the 10-year Bund the yield returned to its highest level since June 2014 (+32 basis points to +1.28%) after a bigger than expected jump in German consumer prices (+7.9% on an annual basis). The same was true for the yield of the French OAT (+30 basis points to +1.79%) as French inflation accelerated more than expected to reach a new record high in May, reflecting the economic repercussions of the Russian-Ukrainian war.

In this gloomy context, investment grade corporate bonds suffered heavy losses (-1.42% in Europe, -0.78% in the United States). High yield bonds lost -0.74% in the US but edged up +0.16% in Europe.

Emerging debt weathered the storm (+0.15%) while the dollar index rose above the 102.00 threshold.

Elsewhere, gold was down slightly (spot price down -0.14% at $1,851.19/Oz). In the crypto space, Bitcoin price was virtually unchanged above the $29,000 support level while Ethereum price was down -1.75% below $1,800.

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