Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European indexes traded slightly higher, thus recovering part of Friday devaluations. Over the coming days, investors will reshape their view regarding US interest rates, which were wrapped in uncertainty after the employment report on Friday. One of the consequences of the publication of this indicator was the appreciation of the Euro against the Dollar, one of the largest this year. This movement explains why the fall in European markets have been higher than their American counterparts. Thus, the evolution of the Euro will assume greater importance in the coming days.
US markets closed with modest losses in a session marked by the publication of data on the labor market. The employment report was one of the most surprising and intriguing of recent years. In May, the US economy added just 38,000 jobs, the lowest monthly creation since 2010. This number was well below not only the estimates (160 000) as well as the average of the last 12 months (180,000). The alert mentioned in the last “Daily Note” about the strike at Verizon (which affected 36,000 workers) that could adulterate the reading in May, was certainly not the only factor for such a low number like 38,000. This number becomes even more intriguing in light of the decline in the unemployment rate from 5% to 4.70%. Although the unemployment rate is very sensitive to statistical adjustments, a decline as steep unemployment in weak job creation scenario is a rather contradictory combination. The only certainty that stemmed from this report is that wages continue to grow (0.20% monthly; 2.50% in annual terms), confirming the trend of recent months. The main reading from this report is that increases uncertainty about the future of monetary policy in the US. This indicator raises the question whether after this data (which should probably be revised upwards next month) is sufficiently striking for the Fed to postpone a possible rise in interest rates at the July meeting. Although these figures decrease the likelihood of an increase in interest rates, increase the uncertainty in the current environment and the uncertainty is the worst threat to the financial markets. Investors fear over an uncertain and unknown factor than a negative factor already know. In this context the intervention of Janet Yellen in Philadelphia (17h30) will be closely followed. Despite the general decline of the stocks at an early stage, in the second half of the session the most sensitive sectors to interest rates as utilities and telecommunications have experienced a sharp rally that allowed limit losses in the main indices. On the other hand, some sectors that could benefit from a rise in interest rates as the financial and construction suffered sharp losses. In short, the Friday report generated environment of uncertainty that will force investors to revise their expectations regarding US interest rates and also regarding the US economy.
Asian indices closed without a common trend. These markets have shown some resilience as well regarding the weakness of Wall Street and the appreciation of their currencies against the dollar as a result of the employment report.