Traders work on the floor of the New York Stock Exchange during morning trading on September 4, 2024 in New York City.
Michael M. Santiago |
This report is from today's edition of the CNBC Daily Open, our newsletter covering the international markets. CNBC Daily Open informs investors what they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Mixed employment report
The U.S. economy added 142,000 nonfarm jobs in August, less than the 161,000 expected by the Dow Jones, but still more than the revised 89,000 jobs in July. Unemployment fell to 4.2% in August from 4.3%, as the labor force increased by 120,000 in August.
Collapsing share prices
US markets fell on Friday, Nasdaq-Composite Stocks in the Asia-Pacific region fell 2.55% on Monday, more than 10% below their record close. Stocks in the Asia-Pacific region continued their downward trend on Monday. Japan's Nikkei225 fell about 0.7% as data showed the country's GDP rose 2.9% year-on-year in the second quarter, less than the Reuters poll's forecast of 3.2%.
Stagnant prices in China
Prices in China rose by just 0.6 percent year-on-year in August. A Reuters poll had expected an increase of 0.7 percent for the year. Meanwhile, China's producer price index fell by 1.8 percent year-on-year, more than expected. To counteract deflationary pressure, China needs a “proactive fiscal policy and a loose monetary policy,” said Yi Gang, former head of the PBoC.
Risk of unwinding carry trades
The Japanese yen maintains its strength against the U.S. dollar and could even rise further due to falling U.S. yields, Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, told CNBC. This could lead to the yen carry trade – in which investors borrow yen to invest in higher-yielding assets – being unwound further.
[PRO] JPMorgan downgrades China stocks
Faced with deflationary pressures, a still-unrecovered property market crash and weak consumer demand, China’s economy and stock market have struggled recently. It is therefore not surprising that JPMorgan has downgraded its rating on Chinese equities – but the bank continues to favor certain Chinese stocks.
The conclusion
What do the markets know that we don’t know?
On Friday, S&P500 fell by 1.73%, the Dow Jones Industrial Average lost 1.01% and the Nasdaq-Composite fell by 2.55%, capping a losing week for all major US indices.
Shares of major technology companies were among the worst performers. The names behind much of this year’s rally – NVIDIA, alphabet, Amazon – fell by around 4% on Friday alone.
If market trends are a barometer of economic health, then bad times are ahead.
That's a very big “if,” though. Markets are less an Excel formula than Word's often random auto-complete suggestions.
What we know from hard numbers is that while the US economy is not doing too well, it is nowhere near as bad as stock prices suggest.
Significantly more new jobs were created in August than in July, while the unemployment rate fell over the month. Yes, the total is lower than expected. But it breaks the downward trend from May and suggests that the U.S. labor market is not moving in the wrong direction.
Of course, the jobs report looks to the past while the markets forecast the future. But the futures market itself, according to the CME FedWatch tool, estimates that the probability of a September rate cut is 71%, while the probability of a 25-point cut is only 29%.
This means that the economic situation is not so bad that the Fed would be forced to make drastic cuts. In addition, there has been no concrete news or earnings reports to date that would have affected the fundamentals of Big Tech companies.
Further, Goldman Sachs and the Federal Reserve in Atlanta recently revised its GDP forecast for the third quarter upward.
The pessimistic week on the stock market appears to be “a sentiment-related move largely driven by growth concerns,” says Emily Roland, co-chief investment strategist at John Hancock Investment Management.
Sometimes our feelings tell us things that our gut knows but our brain doesn't. Sometimes we have to tell ourselves that sense and reason often contradict our feelings.
—CNBC's Jeff Cox, Sam Meredith, Samantha Subin and Pia Singh contributed to this story.
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