Market Report – US jobs data gives Fed license to keep tightening, Wall St sell off resumes

by | Jan 6, 2023

Written by Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown

In the latest trading US trading session, there were sharp falls for some of the main US indices. The Dow tumbled more than 300 points on Thursday, while the S&P 500 and Nasdaq Composite were down over 1% each.

Recent data from the region shows that US private companies added more jobs than expected in December. That gives the Federal Reserve more room to continue hiking interest rates, and another strong reading from the upcoming jobs report will likely send further jitters through the market. For now, the Federal Reserve seems intent on continuing to hike rates, but the market appears to be expecting one, if not two, cuts in the later part of this year.

Any data that suggests inflation is going to be tougher to bring down has the ability to send fresh shockwaves through stocks because of the apparent disconnect between current economic policy and market expectations. Part of the sell-off also came as tech giant Amazon said it plans to cut 18,000 jobs, and its sheer market value meant that nerves around this brought the rest of the index down with it.

European markets are set for a higher open as they take an optimistic view of what the latest jobs data could mean for the Federal Reserve’s plan. With hints that inflation is starting to cool off in certain countries by more than expected, there is some hope that markets might be relieved of particularly aggressive rate hikes. All eyes will be on the eurozone inflation figure for December when it is released later this morning.

Despite the tough conditions, Asia’s equity markets have risen cautiously higher, including the Hang Seng which is within touching distance of six-month highs. Hong Kong’s main market appeared to be celebrating news that China will reopen border checkpoints this weekend after three years of closure, and there are also political plans in place to boost activity in the region. This includes further M&A activity and a stabilising of the economic environment.

South Korea’s Samsung, which is the world’s biggest maker of memory chips, smartphones and TVs forecast has seen its latest operating profit fall to 4.3tn won (£2.8bn). The disappointing result comes as the global economic slowdown has dented memory chip prices, as well as demand for electronics. If demand for these products slows down, then so does the rate at which Samsung’s customers make them – and that’s why orders have slowed. It was Samsung’s lowest quarterly profit since 2014 and missed investor expectations. This will certainly be one to watch from here, because if incoming recessions are steeper than expected, this could just be the start of a difficult road ahead for Samsung.

Some good news for the holiday industry as 61% of people say they’re planning to book a holiday this year, ahead of so-called Super-Saturday, which is the busiest day for overseas holiday bookings, as travellers seek something to look forward to in the post-Christmas slump. According to the research from ABTA – The Travel Association, there is finally something for tourism companies to look forward to. The pent-up demand for overseas travel appears to be offsetting challenges caused by the cost-of-living crisis. With household budgets under so much strain, we could see that the types of holiday being booked are less expensive than usual, which could still spell trouble for margins.

Brent crude is now at $79 a barrel, continuing recent gains. A core reason for the increase is concerns around US inventory levels, which declined sharply following the extreme cold weather seen in the country. While this is pushing up prices for now, the oil price is still on a downwards trajectory on a six-month view, as economic slowdowns and concerns around demand seem to be winning the tug of war with supply challenges.

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