Stocks hit new highs as US jobs report disappoints

Wall Street closed the first week of June with gains. 

Macroeconomic data anticipate a slower than expected recovery in the United States and uncertainty regarding Federal Reserve policy.

The Dow Jones accumulated an advance of 0.7%. The selective S&P 500 gained 0.6% and was very close to its last record. Meanwhile, the Nasdaq index increased by 0.5%.

Last Monday was the Memorial Day holiday in the US, so it has been a four-day week characterized by choppy trading. 

The Fed announced plans to sell corporate bonds

The Fed stated in its Beige Book that the economy expanded at a moderate rate from early April to late May. It resulted from vaccines and lockdown relaxation measures, despite supply chain disruptions. 

Meanwhile, the Federal Reserve has announced plans to sell corporate bonds and index funds it obtained in 2020. Many investors have interpreted it as a sign of change, despite its reduced value.

There were expectations for the employment report published this Friday. It revealed a total of 559,000 jobs and a decrease in the unemployment rate to 5.8%. Despite these weak figures, they encouraged the market, which was worried about monetary policy.

Wells Fargo analysts stated that the last two months of disappointing job increases illustrate the recovery in jobs is likely to last longer than previously reported. 

Experts estimated that the full recovery of employment in the US might not occur until late 2022 or early 2023. It’s because there are still 7.6 million fewer jobs than before the pandemic broke out.

They added that the moderation in hiring would make the Fed have to wait longer to see substantial progress in the labor market. Still, the pressures on wages suggest that the Fed may have to broaden its definition of progress.

In the debt market, the 10-year Treasury yield started the week at 1.64% but fell sharply in reaction to the employment report, to 1.56%, which boosted the technology sector.

 

Nikkei rose by 0.27%, hoping that the US maintains stimulus

Nikkei increased by 0.27% on Monday. The US weak employment data raised expectations that the country will not encourage the withdrawal of economic stimuli.

Nikkei advanced by 77.72 points to 29,019.24. The Topix, listing the firms with the highest capitalization, added 0.08% or 1.66 points to stand at 1,960.85 units. 

The Japanese market cut the rise during the day because investors chose to ensure profits.

The maritime transport sector acquired the main increases, along with services and information and communication sectors.

Konami, the manufacturer of toys, recreational, and video games, recorded the highest increase among the companies listed on the Nikkei. The company rose by 6.97%. It was followed by K-Line, the transport company, which climbed by 5.51%. Meanwhile, Olympus, the manufacturer of optical and imaging equipment, advanced by 5.15%.

The electronic components manufacturer Lasertec brought together the highest trading volume of the session and fell by 1.89%.

The Softbank group followed them with a rise of 9.62%. On the other hand, Toyota yielded 0.32%.

 

Seoul reached an all-time high

The Seoul Stock Exchange settled with a rise of 0.37% in its main indicator. The Kospi represented a new all-time high. 

US employment data eases fears about the change in the economic cycle.  

The selective South Korean Kospi gained 12.04 points on Monday to stand at 3,252.12 units. Meanwhile, the Kosdaq technological index dropped by 0.17%, or 1.72 points, to 985.86.

The technological Samsung Electronics, the most important token for the Kospi, closed the session with a decrease of 0.36%. Meanwhile, SK Hynix, the world’s second-largest memory chip manufacturer, closed with a loss of 0.39%. 

Naver, one of the largest South Korean internet portal operators, gained 1.54%. Kakao, an instant messaging app owner, added 1.61%. 

In the biopharmaceutical sector, Samsung Biologics advanced by 0.24%, but its competitor, Celltrion, lost 0.94%.

Hyundai Motor, the largest national car manufacturer, closed flat.

 

European stock markets opened in red

The main European stock markets have opened the session downwards, influenced by the official employment report in the US last Friday. Although its improvements compared to the previous month, it was a negative surprise for a second consecutive month.

Several minutes after the opening, Frankfurt stumbled the most with a loss of 0.25%. Madrid followed it with a decrease of 0.21%. Meanwhile, Paris dropped by 0.15%, and Milan yielded 0.10%. Only the London Stock Exchange rose by a slight 0.11%.

For its part, the Euro Stoxx50, which groups together the leading European companies, was also reduced by 0.16%.

This week, investors will be watching for the ECB meeting and the US CPI data, which will continue to press upward in the short term.

They will also pay particular attention tomorrow to the release of Germany’s ZEW economic sentiment indicators.

In the debt market, the interest on the German bond, considered the safest, rose to 0.208%.

 

Analysts believe ECB and Fed will avoid the withdrawal of stimulus in June

Managers and other financial institutions believe that central banks will probably let the summer pass to confirm whether the rise in inflation is temporary. 

Analysts also share that the withdrawal of monetary stimulus will begin earlier in the US, where the recovery is stronger than in Europe. 

Investors’ fear of tapering has reached such a point that positive macroeconomic data, especially if they exceed expectations, translate into falls in the stock markets and increases in bond yields.

Nobody disputes that the withdrawal of stimuli is on the horizon, especially in the US. However, the situations in Europe and the US are not comparable.

Analysts do not expect a change in bias from the ECB at the June 10 meeting. Instead, they assume the ECB will continue with the stimulus policy until at least 2022. 

Analysts see a withdrawal of stimulus in the US closer, although they do not expect the Federal Reserve to consider it before the end of August.