Global stock markets experienced a mix of results on Friday as Wall Street reversed its gains following a disappointing US jobs report. The US economy added approximately 187,000 jobs in July, falling short of the expected 200,000 projected by analysts. This data suggests that the Federal Reserve’s interest rate rises may not achieve the desired soft landing, which aims to bring down inflation without causing a recession. Consequently, the US central bank may pause its actions at the next policy meeting scheduled for September.
Market sentiment was also affected this week by Fitch Ratings’ decision to downgrade the US credit rating from its top-tier AAA status. The agency cited concerns about growing fiscal deficits and an erosion of governance. Investment sentiment was dampened by this development, along with the possibility of higher interest rates due to the resilient US job market data. According to Leonardo Pellandini, an equity strategist at Swiss lender Julius Baer, the combination of these factors has put pressure on equity markets and risky assets.
On Wall Street, the S&P 500 closed 0.5% lower, while the Dow Jones Industrial Average and the tech-heavy Nasdaq Composite ended the week down 0.4%. This marks the fourth consecutive decline for the S&P 500, the main gauge of Wall Street’s health. The Dow fluctuated between gains and losses before settling slightly lower.
For the week, the S&P 500 lost 2.3%, the Dow declined by 1.1%, and the Nasdaq decreased by 2.8%. However, year-to-date, these indices still show strong positive gains of 16.6%, 5.8%, and 32.9% respectively.
In London, the FTSE 100 broke its three-day losing streak and closed 0.5% higher on Friday, driven by a 2% gain in energy stocks. However, it experienced its first weekly drop in four weeks.
Investors also reacted to the Bank of England’s decision to raise interest rates by 0.25 percentage points to 5.25%, reaching a 15-year high. This move, the 14th consecutive rate increase, was widely anticipated, with economists predicting further increases in the future. Janet Mui, head of market analysis at RBC Brewin Dolphin, remarked that considering the current high level of inflation and the resilient economy, the Bank of England has left the door open for additional tightening. The markets are now pricing in the possibility of almost two more rate increases by year-end.
Elsewhere in Europe, Frankfurt’s DAX closed 0.4% higher, while Paris’ CAC 40 rose 0.8% at the end of trading.
In Asian markets, Tokyo’s Nikkei 225 gained 0.1%, Hong Kong’s Hang Seng index increased by 0.6%, and the Shanghai Composite rose by 0.2%.
Oil prices rebounded from a midweek dip to record their sixth consecutive week of gains on Friday. This was prompted by Saudi Arabia and Russia committing to extend supply cuts in order to support the market. Brent crude rose 1.29% to $86.24 per barrel, while West Texas Intermediate increased by 1.27% to $82 per barrel.
Gold prices also rose by around 0.4%, reaching $1,976.10 per ounce. However, this resulted in the precious metal experiencing its biggest weekly decline in six weeks. Gold, often considered a hedge against high inflation, gained after the US jobs report caused Treasury yields and the dollar to drop.
In summary, global stock markets displayed a mixed performance on Friday, with Wall Street erasing its gains following weaker-than-expected US jobs data. The markets remain uncertain about the impact of the Federal Reserve’s interest rate increases and are reacting to factors such as credit rating downgrades and geopolitical tensions.
