World indices retreat after surprisingly strong US labour market data

The past week was filled with emotions past Wednesday's Fed statement and then past Friday's Non Farm Payrolls.

The Federal Open Market Committee raised interest rates (broadly expected) by 25 basis points (0.25%), bringing the target funds rate to 4.5%-4.75%. This is a noticeable slowdown from recent increases of 50 and 75 basis points.







More important to market participants was the softening in Powell's tone, and it was this that led to a rise in the stock prices and indices in general. After two days of rising on Friday, employment data acted as a sobering blow to over-optimists. The labor market added 517,000 jobs in January, far more than the 187,000 expected, sending equity markets down and bond yields back up to over 3.5%. The strong and surprising job growth is being interpreted as a negative by investors as it could extend the rate hike cycle. The unemployment rate fell to 3.4%, beating forecasts of 3.6% and marking the lowest unemployment rate since May 1969. The biggest drivers were in the leisure & hospitality sector.

Tech giants Amazon, Apple and Alphabet released their earnings figures on Thursday after the close of the trading session. All three companies announced disappointing results or future guidance. The NASDAQ underperformed late in the week, likely the result of a confluence of factors from slowing earnings growth, higher wages and elevated Fed rate expectations especially after the surprise strong labor market results.

Bonds

Higher yields - the result of aggressive Fed policy - have led to activity from US pension funds. According to a Bloomberg report, they could inject about $1 trillion into the bond market. 

What to expect 

Next week will be considerably calmer than last week. But markets will continue to make sense of the surprising burst of non-farm employment in the US. Earnings season continues with media and consumer stocks. Corporate earnings data will be announced by Walt Disney, News Corp, the New York Times.

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