Bonds are speaking; are stocks listening?

Non-farm payrolls rose by 22K August, missing consensus estimates of 75K, while the unemployment rate rose from 4.2% to 4.3%, its highest level in nearly four years. The data continued the recent slowdown in the labour market, and investors are now fully pricing in a September rate cut. Meanwhile, the unemployment rate in the Eurozone hit an all-time low of 6.2%, matching expectations.

Eurozone HICP inflation came in hotter than anticipated, climbing to 2.1% in August, ahead of forecasts of 2.0%. In the US, the non-manufacturing ISM survey printed at 52.0 for August, higher than 50.1 in July and ahead of expectations of 51.0. UK retail sales grew by 0.6% in July, exceeding forecasts of 0.2%. However, retail sales statistics for the first half of the year were revised down after the Office for National Statistics admitted to calculation errors.

The global sell-off in long-term bonds deepened as fiscal jitters persist. In the US, 30-year treasury yields rose above the 5.0% mark, while in Europe, yields on French offerings reached a 16-year high amid growing political unrest. 30-year UK gilt yields hit their highest level since 1998. Fiscal concerns pushed gold to another record high this year above $3,600/oz.

In corporate news, Google escaped the harsher penalties that were mooted in the ruling on its antitrust case. The search-engine company was not forced to sell Chrome and is allowed to continue paying distributors for default placement, chief among whom is Apple, which Google pays an estimated $20 billion annually in exchange for prime placement on iPhones. Google’s stock surged 9% in response to the news, while Apple’s share price also rose 4%.

Equities

Global stocks finished up 0.1% in euro terms and up 0.4% in local terms last week. Year-to-date global markets are up by 0.7% in euro terms and up by 14.2% in local terms. The US market, the largest in the world, finished slightly up at 0.1% in euro terms and up 0.4% in local terms.

Fixed Income & FX

The US 10-year yield finished at 4.1% last week. The German equivalent finished at 2.7%. The Irish 10-year bond yield finished at 2.9%. The Euro/US Dollar exchange rate finished at 1.17, whilst Euro/GBP finished at 0.87.

Commodities

Oil finished the week at $62 per barrel and is down -23.8% year to-date in euro terms. Gold finished the week at $3,587 per troy ounce and is up 20.8% year-to-date in euro terms. Copper finished the week at $9,830 per tonne and is up 0.4% year-to-date in euro terms.

The week ahead

Wednesday 10^th September

US producer price index goes to print.

Thursday 11^th September

ECB rate decision is announced.

Friday 12^th September

UK GDP growth for the three months to July is reported.