8 Aug 2022

​U.S. technology growth stocks extended gains last week. The S&P rose 0.4% for the week, the Nasdaq rose 2.1% and the Dow fell 0.1%. As valuations have generally bottomed out, the logic of a mild recession in the macro has stabilized, and technology stocks have continued their liquidity recovery. The yield on the 10-year U.S. Treasury bond rebounded by 18 basis points and closed at 2.83%, with a spread of -40 basis points from the yield on the two-year Treasury bond, which was still deeply inverted. The VIX, the fear index, fell 0.84% ​​for the week. The decline in oil futures was unstoppable, and WTI crude oil fell 10% this week to close at 88.46. Spot gold continued to rebound, closing up 0.5% this week at $1,775.8 an ounce. The dollar index rebounded this week, closing up 0.68% at 106.55.

The US ISM non-manufacturing PMI recorded 56.7 in July, significantly exceeding the expected 53.5 and the previous value of 55.3. Institutional analysis pointed out that the US service industry unexpectedly rebounded in July, mainly due to strong growth in orders, while supply bottlenecks and price pressures eased. Overall economic growth momentum has cooled, but service sector activity is being supported by a shift from spending on goods to services.

The U.S. unemployment rate recorded 3.5% in July, better than the expected 3.6%, and the employment participation rate was 62.1%, which was similar to the expected 62.2%. The non-agricultural employment population was 528,000, far exceeding the expected 250,000, and the previous value of 372,000. Average hourly wages recorded an annual rate of 5.2% in July, significantly exceeding expectations of 4.90% and the previous value of 5.10%. After the non-agricultural data was released, the probability of the Fed raising interest rates by 75 basis points in September rose sharply. According to CME's "Federal Reserve Watch": The probability of the Fed raising interest rates by 50 basis points by September is 38.5%, and the probability of raising interest rates by 75 basis points is 61.5%.

Institutional analysis said that the US non-farm payrolls report in July was better than expected, indicating a strong labor market, which may mean that the Federal Reserve will raise interest rates further. Another bad news for the Fed is the decline in the labor force participation rate. The number of people working or looking for work in the job market fell last month. What the Fed really wants is to see people flood back into the labor market, push up unemployment, and ease wage pressures. But instead, what we're seeing is people leaving the job market and employers using higher wages to lure those who stay. A hot labor market usually means high inflation.

Overall, the data has significantly eased recession fears, but at the same time, with wages still accelerating, markets are starting to worry about a wage-price spiral that could repeat the stagflation of the 1970s.

Economic Releases For The Week (8/8/2022-12/8/2022):

9/8/2022
MY - Malaysia's Unemployment Rate, 12.00PM
MY - Malaysia's Industrial Production, 12.00PM

10/8/2022
JP - Japan's Producer Price Index, 7.50AM
CN - China's Inflation Rate, 9.30AM
CN - China's Producer Price Index, 9.30AM
US - United States' Inflation Rate, 8.30PM

11/8/2022
MY - Malaysia's Retail Sales, 12.00PM
US - United States' Producer Price Index, 8.30PM

12/8/2022
MY - Malaysia's 2Q22 GDP Growth Rate, 12.00PM
UK - United Kingdom's 2Q22 GDP Growth Rate (Preliminary), 2.00PM
UK - United Kingdom's Industrial Production, 2.00PM
UK - United Kingdom's Manufacturing Production, 2.00PM
EU - Eurozone's Industrial Production, 5.00PM

Sources from: Investing.com; Reuters.com

Louis Yap

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