It was a week marked by Federal Reserve hearings, bank collapses and rounding of jobs numbers with a broad drop in the US stock market on Friday night.
This is how it ends up for most trend-finding indicators:
- The Standard & Poor’s 500 index fell 1.5 percent
- The Dow Jones Industrial Average fell 1.1 percent
- The technology-dominated Nasdaq Composite fell 1.8 percent
All three also fell earlier in the week, and with the results in hand, it’s clear that the S&P 500 has lagged behind its heaviest week since September of last year, according to the Wall Street Journal. The index fell 4.6 percent, while the Dow Jones and Nasdaq indexes fell 4.4 and 4.7 percent, respectively.
The most important number of the month
As expected, fresh labor market numbers from the United States were an important driver for Friday’s trading. The result showed that more jobs were created than expected, while unemployment rose somewhat.
In numbers, 311,000 new jobs were created, compared to 225,000 previously projected according to Bloomberg. The unemployment rate rose from 3.4 percent in January to 3.6 percent in February, when it was actually expected to remain unchanged.
Many in the market consider the jobs number to be the most important indicator for gauging the temperature and determining the direction of the US economy. The figures refer to the change in the number of workers in the US economy from the previous month, while workers in agriculture were excluded due to large seasonal fluctuations, hence the name “non-farm payroll”.
bank problem
The stock market tumbled on the heels of the numbers — then briefly rose — before a new twist in the short but intense saga of the collapse of the Silicon Valley niche bank sent a renewed slump in stocks.
CNBC You mentioned that the US authorities have now closed the bank and taken control of its funds.
This happened after the bank’s clients withdrew money from their accounts in torrents, simply “bank flows”, after it became known on Wednesday evening that the bank had to sell government bonds and real estate loans at a loss to ensure liquidity.
The bank has largely directed its operations toward lending money to a number of technology companies and start-ups, which were nearly thrown money at by the low, low interest rates of the 2000s. The money received by the companies placed it with SVB, which in turn invested in, among other things, long-term US government fixed-rate bonds.
Tech companies and start-ups now face very different interest costs than before, and this, combined with a strong general price increase, has led to higher costs – and higher spending – and thus lower deposits with SVB.
Relatively suddenly, SVB needed liquidity, and so had to sell government bonds at a loss to provide that.
– “Danger”
In short, market participants had plenty of information to munch on during the last trading day of the week.
The labor market report from the US also contained important information about wage growth in February, a key factor for those wondering where US inflation – and interest rates – will go next.
The result showed wage growth of 4.6 percent in February, just below the 4.7 percent previously forecast.
Slightly weaker-than-expected wage growth is the number we noticed, but also job growth was still very good. There has been a slight increase in the unemployment rate, but when that coincides with job growth, that’s okay. There is no traceable recession here, says Olaf Chen, Head of Customization and Global Interests at Storebrand.
Storebrand’s Head of Personalization and Global Interests, Olaf Chen. (Photo: Gunnar Lehr)
– I would interpret this as good from a growth point of view, because it makes it a little easier on inflation and wage pressure, he says.
What do you think of the chances of a soft landing now?
– I never believed in a soft landing, but now there is a lot of talk about “no landing” in 2023. I think there will be no landing until there is a hard landing. The recession continues to be postponed. My point has always been that the first half of the year is too early for a recession. Now I’m thinking of delaying the recession until 2024.
Increase interest rate expectations
In January, by comparison, 517,000 jobs were created, a number that really shocked the market, as it was miles higher than the initial estimate. That number has now been revised to 504,000 in the report published on Friday.
The very strong jobs numbers in January led to a significant rise in interest rate expectations. During a congressional hearing, US Federal Reserve Chairman Jerome Powell confirmed this week that the peak in interest rates is likely to be higher than previously thought. However, Powell was clear that the central bank will continue to make assessments from meeting to meeting, based on the data received.
In December, the central bank indicated a peak interest rate of 5.1 percent, while the market now expects interest rates to peak at just over 5.4 percent. For the interest rate decision in just over two weeks, the central bank will present a new “point chart”, which shows everyone’s expectations for the key interest rate at different points in time.
On Thursday, the market priced in the highest possibility of a 0.5 percentage point hike at the March interest rate meeting, but after Friday’s report, the probability was reduced to 40 percent, while there is a 60 percent chance of 0.25 percentage point, according to CME Group.(conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For more terms see here.
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