MONETARY TIGHTENING POLICIES STILL HITTING MARKETS
The markets last week continued the decline that began in the preceding week, in the wake of the Jackson Hole Symposium and the Fed Chairman’s undeterred plans to continue monetary tightening to curb inflation.
The monthly employment report released in the US last Friday was a mixed bag, with unemployment rising to 3.7% and job creation slowing (but still strong). This news on jobs seems incapable of denting the upward trajectory in US monetary policy, although the rise in the participation rate is good news for the Fed as it could lead to a slowdown in wage growth, which would mean less inflationary pressure in that department.
Last month the US economy added 315,000 jobs in the non-farm sector – slightly more than the 298,000 expected by the consensus but well below the 528,000 reported for July. The unemployment rate rose by 0.2 percentage points to 3.7% whereas no change had been expected. But wages did not soar month on month. They rose by 5.2% year on year.
The S&P 500 gave up 3.19% while the tech-heavy Nasdaq, which is more sensitive to interest rate expectations, shed 3.92%.
Bond yields edged up, with the US 10-year yield rising to 3.19%, while the short end of the curve eased slightly.
In Europe, persistent inflation and the energy crisis continued strongly impacting market sentiment and undermining the economic outlook. Germany has pledged EUR 65 billion to help households pay their energy bills, partly through a windfall tax on energy companies. Sweden is providing credit guarantees to Nordic electricity companies amounting to SEK 250 billion (USD 23 billion).
The ECB will announce its rate decision this week. At this stage, an increase of 50 basis points seems most likely.
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