A sign asking for supporters is posted at a store in Ocean City, New Jersey, USA on Friday, August 18, 2023. Despite slowing inflation and rising employment, Americans remain deeply skeptical of the president’s handling of the post-pandemic economy, surveys suggest.Photographer: Al Drago/Bloomberg via Getty Images
Al Drago | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new international markets newsletter. The CNBC Daily Open provides investors with everything they need to know, no matter where they are. Like what you see?can subscribe here.
Bonanza benefits for UBS
UBS’s second-quarter net profit amounted to $28.88 billion, well above expectations of $12.8 billion. This is the Swiss bank’s first quarterly profit since its acquisition of Credit Suisse. Earlier this month, UBS announced it had terminated a 9 billion Swiss franc ($10.24 billion) loss protection agreement with the Swiss government, signaling that its merger with Credit Suisse is on track.
Job creation slows down
U.S. job growth slowed to 177,000 jobs in August, according to payroll firm ADP. This is lower than the 200,000 expected by economists, but the figure itself is already well below the 371,000 that was revised downward in July. This is a sign that the effects of high interest rates are starting to be felt, and traders are hopeful that the U.S. Federal Reserve may pause rate hikes.
market regains momentum
U.S. stocks rallied Wednesday after weaker-than-expected economic data, giving the S&P 500 its fourth straight day of wins. Asia-Pacific markets traded mixed on Thursday. Data showed retail sales rose 6.8% year-on-year in July, well above expectations of 5.4%, and Japan’s Nikkei Stock Average rose about 1%. However, China’s Shanghai Composite Stock Price fell 0.5% as economic data once again disappointed expectations.
Chinese mixed signs
China’s factory activity contracted for the fifth straight month in August, but at a slower pace than in July. Nonmanufacturing activity expanded this month but fell to its lowest level this year. Meanwhile, according to China Beige Book’s survey of Chinese enterprises, retail sales in August increased significantly compared to July.
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Bad news is once again good news for the market.
Markets last week were dominated by fears that interest rates would remain high, or even higher, in the face of a consistently strong economy and stubborn inflation. (Recall that the 10-year Treasury yield, which typically reflects interest rate expectations, hit a 16-year high last week.)
Some of those worries disappeared Wednesday.
New data showed economic growth is still strong enough to suggest a soft landing, but not as ferocious as previously thought. The US’ second quarter gross domestic product (GDP) was revised downward from 2.4% to 2.1% on an annualized basis.
Furthermore, job creation in August was lower than expected. In another encouraging sign that inflation may be easing, wage growth has slowed for workers regardless of whether they change jobs or stay in their current jobs, ADP said.
“This month’s numbers are consistent with the pace of job creation before the pandemic,” ADP chief economist Nella Richardson said in a press release. “After two years of exceptional gains as the economy recovers, we are on track for more sustainable growth in wages and employment as the economic impact of the pandemic recedes.”
In short, there is hope that the Fed will loosen monetary policy based on weaker-than-expected economic data. The market welcomed the news.
The S&P 500 rose 0.38%. This may seem like a small number, but it is statistically significant for several reasons. One is bringing her four-day winning streak to the index. Second, the index finished above his 4,500, helping him break through a major psychological barrier. Third, it helped limit his August losses to about 1.6% from his Aug. 18 intraday low of 5.53%. The Dow Jones Industrial Average rose 0.11% and the Nasdaq Composite Index rose 0.54%.
Tomorrow, pay attention to the Personal Consumption Expenditure Index, which shows how much consumers spent in July. Weaker inflation data would complete the trifecta of economic growth, employment and inflation that the Fed wants to slow. That way, the market will probably breathe a sigh of relief for now.