Week in Review: Stocks up, Dollar down on Jobs Report

The U.S. jobs report remained in the spotlight this week, with Friday bringing the closely watched monthly nonfarm payrolls report. The U.S. added 559,000 jobs in May, below consensus forecasts of around 650,000. Whilst the number missed estimates, it was strong enough to shake off fears of a substantial slowdown in hiring after April’s disappointing monthly report, but not enough to spur higher inflation concerns – as a result, we saw stocks rally with the S&P 500 reaching a new all-time high and the dollar weakening on Friday.

The Bureau of Labor Statistics said that the unemployment rate had fallen to 5.8% from 6.1% in April, still significantly higher than the 3.8% unemployment rate recorded in February 2020 before Covid 19 hit. ADP payroll employment numbers released the day earlier came in well above estimates at 978,000 vs. 650,000 estimated.

Despite mixed employment signals, Federal Reserve officials once again reiterated that significant slack remained in the economy and that the Fed was far from achieving its inflation and employment targets but stressed that the Fed would be quick to act if inflation does not prove to be “transitory”.

President Biden has pitched Republicans the idea of a 15% minimum tax rate on U.S. corporations. It also sets aside Biden’s orginal proposal to raise the headline corporate income rate to 28% from 21%, a non-starter for Republican lawmakers. In return, Republicans would have to agree to at least $1 trillion in new infrastructure spending.

At the same time, the G7 group of nations are set to agree on a common position on taxing multinational companies, ending a three-decade race to the bottom in corporate taxation which would raise extra revenue for governments around the world. The G7 are nearing a deal to pursue a minimum corporate tax rate of at least 15% in international negotiations but remain at odds over how to treat global technology companies.

Eurozone inflation rose to 2% in May, the first time it surpassed the ECB target in more than two years, complicating policymakers decision next week on whether to maintain its ultra-loose monetary policy. The unemployment rate also eased unexpectedly to a level of 8.0% in April. In the prior month, unemployment was recorded at 8.1%.

China suprisingly relaxed its current two-child policy on May 31, allowing couples to have a third offspring. In January 2016, China relaxed its one-child policy to allow two children per family.

A second major cyberattack on critical U.S. infrastructure has taken place in less than a month. Hackers, alleged to be from Russia again, took the world’s largest meat producer, JBS offline this week. JBS’s five biggest beef plants in the U.S. halted processing following the weekend attack, equal to one-fifth of all of America’s meat production.

Oil prices surged on Wednesday, hitting their highest level in more than a year from a decision by OPEC+ and allies to stick to the plan to gradually restore supply, despite the alliance anticipating tighter oil markets going forward.

With the exception of Asia, global equities were modestly stronger this week. In the U.S., the Dow Jones (+0.66%), S&P 500 (+0.61%) and Nasdaq (+0.48%) were all stronger. Similarly, the Euro Stoxx 50 (+0.46%) and FTSE 100 (+0.66%) were positive, whilst the Nikkei 225 (-0.71%) and Shanghai Composite Index (-0.25%) were outliers.

Market Moves of the Week

Locally, the Competition Commission ruled that the proposed takeover of Burger King by a U.S. private equity fund be prohibited due to the lack of BEE in the new ownership structure. While the Commission found that the proposed transaction was unlikely to impact Competition in SA, the Commission found that ”…the merger would lead to a significant reduction in the shareholding of historically disadvantaged persons in the target firm…”.

South African unemployment hit a record high with over 7 million people without a job. The official unemployment rate for the first quarter of this year reached 32.6%. Among the hardest hit are the South African youth with 74.4 percent of them facing unemployment.

The JSE All Share Index ended the week up +0.40%, with all three of the major sectors including resources (+0.49%), industrials (+0.55%) and financials (+0.11%) marginally stronger. The rand continues to strengthen and leads other emerging markets as the strongest currency against the U.S. Dollar year-to-date. As of Friday’s close, the rand was trading at R13.42 to the U.S. Dollar.

Chart of the Week

The surge in early retirements spurred by the pandemic is increasing inequality among Baby Boomers in the U.S. At least 1.7 million older workers retired early, according to a report by the New School for Social Research’s Retirement Equity Lab. The Covid-19 health crisis is creating two classes of early retirees: people who have investments and are taking advantage of the unprecedented surge in shares and home prices; and low-paid workers without much retirement savings finding themselves forced out of their jobs with little prospect of finding employment again.