Weak US payrolls put rate cuts back into focus

US equities surged over 1% on Friday, led by the Nasdaq, as shares rallied amid a sharp drop in the 10-year Treasury yield following a disappointing jobs report. Payroll and wage growth slowdowns reinforced Chair Powell’s message of no rate hikes despite sluggish inflation. Apple’s shares soared over 7% on better-than-expected earnings and a $110 billion share buyback announcement. The dollar weakened as markets priced in two Fed rate cuts this year. The S&P 500 rose 1.2%, Nasdaq 2%, and the Dow Jones gained 450 points.  On the week, Dow rose 0.9%, S&P 500 0.3%, and Nasdaq 1.2%.  Meanwhile, the Stoxx 50 index in the euro area closed higher despite a 1.8% weekly decline, driven by gains in luxury and auto sectors, while Intesa Sanpaolo suffered losses. 

Summary for 06.05.2024 

• Most Asian equities rose on Monday, following Wall Street’s lead as weak payrolls data fuelled rate cut expectations. Chinese markets surged with Shanghai Shenzhen CSI 300 and Shanghai Composite indices hitting 7-month highs after Beijing relaxed home owning restrictions. Australian ASX 200 also climbed, but sentiment was cautious ahead of the Reserve Bank of Australia meeting. Broader Asian markets were subdued due to holidays. 
• European markets will be waking up to a fairly quiet session with little on the economic calendar to stand in the way of the latest rate-cut rally. Meantime, US equity index futures rose in evening trading on Sunday, with investors increasingly betting on a September rate cut, while attention turns to a string of Federal Reserve speeches for further interest rate cues. 
• Oil prices rose in Asian trade after a week of significant declines, driven by stalled ceasefire talks between Israel and Hamas. Brent oil futures increased to $83.39 a barrel, and West Texas Intermediate crude futures rose to $78.18. However, concerns about weakening demand and increased supplies continue to limit further gains. 
• In April, China’s services sector, as indicated by the Caixin China General Services PMI, slightly declined to 52.5 from March, with notable growth in new business and foreign sales, but employment continued to decrease. The China Composite PMI rose to 52.8, reflecting overall growth in both manufacturing and services sectors. 
• The US economy added 175,000 jobs in April, falling short of expectations and marking the smallest increase in six months. The unemployment rate rose to 3.9% from 3.8%. Notably, gains were driven by the health and private education sectors, while hiring in construction and the public sector slowed. Average hourly earnings rose modestly by 0.2%, lower than the 0.4% average earlier this year. Annual wage growth dipped to 3.9%, down from 4%, the first decline since June 2021. 
• The European Central Bank is leaning towards a June interest-rate cut, as Chief Economist Philip Lane expressed confidence that inflation is heading towards the 2% target. Recent data, including April’s inflation estimate and Q1 GDP, support this view. Investors are monitoring euro-zone producer prices and services PMI data for insights into the rate path. 
• The board of French tech firm Atos met on Sunday to review takeover offers, including one from Czech businessman Daniel Kretinsky, along with bids from David Layani and Bain Capital, and creditors representing half of Atos’ debt. Atos is facing financial difficulties, needing €1.1 billion cash, prompting offers and interest. 
• At HSBC‘s shareholder meeting, China’s Ping An Insurance Group, the bank’s largest Asian investor, voted against reappointing CEO Noel Quinn as a director to the board, despite his successful reelection with 83.93% of votes in favour. Quinn plans to step down once a successor is appointed after cutting underperforming businesses. 
• Warren Buffett’s Berkshire Hathaway reduced its stake in Apple by 13% according to its quarterly earnings report, bringing the investment’s value to $135.4 billion with approximately 790 million shares. Despite the reduction, Apple remains Berkshire’s largest holding. Buffett expressed no concern, citing America’s support, and highlighted Apple’s share buyback. The sale boosted Berkshire’s cash reserves to a record $189 billion, with plans to increase it to $200 billion amid uncertain markets, inflation, and geopolitical risks. 
• Societe Generale shares dropped over 5% on Friday after its CFO flagged that net interest income from the French retail business would be at the lower end of guidance. Despite strong first-quarter results, concerns about NII guidance and high deposit costs in France drove the decline. SocGen reported a 22% drop in net income but beat analyst estimates. 
• Also on Friday, Daimler Truck shares dropped 6.5% despite beating forecasts in its Q1 results. While North American truck orders rose 30%, European orders fell 15%, disappointing analysts. CEO Martin Daum cited a “depressive sentiment” in Germany, impacting the company’s European market share, leading to doubts about a recovery. Core profit totaled €1.21 billion, meeting guidance for the year. 
• With a relatively quiet week ahead in the US, attention will focus on key economic indicators and earnings reports. Central banks in major economies such as the UK, Australia, Brazil, and others will announce their interest rate decisions. Additionally, updates on Germany’s factory orders and industrial production will be closely monitored in Europe. GDP growth rates in the UK will also be in the spotlight along with services PMIs are scheduled for release in Spain, Italy, and Brazil.