U.S. Job Market Slightly Improved in Summer Laying Out Case for Further Rate Hikes

U.S. equity markets extended their decline, as improving labor market and consumer confidence data reinforced expectations of continued tightening by the Federal Reserve. The Dow closed 1% lower, while the S&P 500 and Nasdaq shed 1.1%. Today U.S. stock futures were also mostly lower in earlier pre-market, but thereafter showed attempts of modest rebounds. At the time of writing, the Dow Jones eked out a gain of 0.11%, while the Nasdaq Composite futures are edging higher by 0.72%.

Yesterday U.S. Fed officials continued to reiterate their commitment to raising rates to bring down inflation – though they decided not to disclose on how large any potential upcoming rate hike would be. Meanwhile, Goldman Sachs issued a sobering warning for the UK, predicting inflation would rise to 22%. The U.S. Labor Department’s monthly job openings and labor turnover survey (JOLTS) found that job openings held steady and layoffs were little changed last month, in signs of hope for the U.S. job market, which would further support the Fed's case for higher rate hikes. The Conference Board's latest index of consumer confidence also showed a bigger jump than expected in August as gas prices eased. The index rose to a reading of 103.2 this month, up from a downwardly revised reading of 95.3 in July.

Home prices nationwide rose 18% in June compared to a year earlier, down from a 19.9% gain in May. The 20-city Case Shiller composite index tracking home price growth across major metropolitan areas dropped to an annual rate of 18.5% from May's 20.5% gain. The figure came in well below analysts’ expectations for an over 19% gain. The U.S. home price growth had soared in 2020 and 2021, as mortgage rates were low and homebuyers bought properties further outside major cities following the Covid-19 pandemic. Home price growth eventually peaked at a record 21.2% annual rate in April.

European markets were lower today. The STOXX Europe 600 Index fell 0.7%, British FTSE 100 dipped 1.15% while the French CAC 40 Index declined 0.48%, and German DAX fell 0.09%. Annual inflation rate in the Eurozone increased to 9.1% in August from 8.9% in July. The French economy grew 0.5% QoQ in Q2 compared to a 0.2% drop while the annual inflation in the country fell to 5.8% in August from 6.1% in July. Import prices in Germany rose by 28.9% YoY in the same month. Elsewhere, Rishi Sunak, the leader in the UK Conservative leadership race, has warned that the next prime minister faces the risk of markets losing confidence in Britain’s economy. His opponent Liz Truss has said she would swiftly implement a series of tax cuts and other support for households.

Asian markets traded mostly lower earlier today. Japan’s Nikkei 225 fell 0.37%, China’s Shanghai Composite dropped by 0.78%, while Australia’s S&P/ASX 200 fell 0.2%. However, Hong Kong’s Hang Seng Index eked out a microscopic gain of 0.03%. Retail sales in Japan rose by 2.4% YoY in July, while the country’s industrial production increased by 1% MoM during July. The consumer confidence index in Japan rose to a three-month high level of 30.2 for August up from 30.2 in July, while housing starts dropped by 5.4% year-over-year in July. The official NBS Manufacturing PMI for China rose to 49.4 in August from 49.0 a month ago, while non-manufacturing PMI fell to a 3-month low of 52.6.