Week in Review: US Job Market Shows Signs of Cooling

For the month of February, the United States (U.S.) saw a drop in job openings to under 10 million, marking the first time this has happened in nearly two years. The Job Openings and Labour Turnover Survey (JOLTS) report showed that job openings, which are an indicator of labour demand, decreased by 632,000 to 9.9 million – the lowest level since May 2021. This figure was below the 10.4 million job openings forecasted by economists surveyed by Reuters. Despite the larger-than-expected decline, the labour market remains tight, with 1.7 job openings available for every unemployed person in February, down from 1.9 in January. Moreover, the JOLTS report showed a slight decrease in both hires and separations with quits increasing by 146,000 to just over 4 million, indicating confidence in the labour market’s ability to switch jobs.

Payroll processing firm ADP reported that private sector hiring slowed down in March.  Company payrolls increased by 145,000, which was lower than the Dow Jones estimate of 210,000 and down from 261,000 in February. The average monthly hiring rate for the first quarter was 175,000 jobs, lower than the 216,000 in the previous quarter and a significant reduction from the average of 397,000 in the first quarter of 2022. Similarly, the Labour Department’s Nonfarm payrolls report also showed signs of an early-stage slowdown in the jobs market, with payrolls growing by 236,000 in March, below the upwardly revised 326,000 in February and the Dow Jones estimate of 238,000. The Labour Department also reported that the unemployment rate ticked lower to 3.5%, against expectations that it would hold at 3.6%.

For the week, the benchmark S&P 500 fell by -0.10% while the tech-heavy Nasdaq dropped by -1.10%. In contrast, the Dow Jones ended the week on a positive note, with a weekly gain of +0.63%. Oil prices experienced a third consecutive weekly gain of +6.27% as market participants evaluated the impact of OPEC+’s planned production cuts and declining U.S. oil inventories, while also factoring in concerns about the global economic outlook.

According to the Bank of England’s (BOE) Chief Economist, Huw Pill, officials might need to increase interest rates to prevent a rebound in prices caused by households and companies trying to recover their lost income, even as inflation decreases. This view differs from that of colleague Silvana Tenreyro, who suggested at a separate event on Tuesday that the BOE may have to reduce rates “earlier and faster” due to the rapid pace of tightening. The Chief Economist, Pill, did not provide any guidance on how he would vote at the BOE’s next rate decision on May 11. Financial markets currently predict a 70% chance of another quarter-point rate increase at the BOE’s next meeting.

Like their British counterparts, ECB officials, including President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane, have indicated that another interest rate hike is imminent. Lane has stated that if inflation follows the projected path outlined in the ECB’s March economic projections, the bank will need to raise rates in May. Although the ECB has already raised rates by a total of 350 basis points since July 2022, it has not given any specific guidance for its upcoming May 4 meeting, citing turbulence in the financial sector as a reason for caution. While several other policymakers echoed the view that rates might rise, they also said they believed rates were nearing a peak.

For the week, the FTSE 100 ended positively, gaining +1.44%, while the Euro Stoxx 50 declined by -0.13%

On Tuesday, Finland officially joined the North Atlantic Treaty Organization (NATO) as its 31st member. This marks the end of Finland’s seven-decade-long military non-alignment and abandonment of their neutrality. Finland’s decision to join NATO has doubled the length of the border that NATO shares with Russia and strengthened its eastern flank, which is crucial as the war in Ukraine continues with no signs of resolution. By becoming a member of NATO, Finland can access the resources of the entire alliance in case of an attack, providing a guarantee of protection to the northern European nation.

In China, the private Caixin/S&P Global survey showed that services activity increased to 57.8 in March, up from 55.0 in February. This marks the third consecutive month of expansion since Beijing lifted pandemic restrictions in December. However, the survey’s manufacturing gauge slowed to 50.0 in March from an eight-month high in February due to sluggish global demand. The weaker-than-expected Caixin/S&P manufacturing data corresponds with the official manufacturing Purchasing Managers’ Index released the prior week, which also declined from February’s level but remained in expansion. Index readings above 50 indicate growth compared to the previous month.

Chinese stocks rose during the holiday-shortened week, driven by a rebound in services activity which boosted investor confidence. The Shanghai Stock Exchange Index gained 1.67%. In contrast, Japanese stocks fell, with the Nikkei 225 Index dropping by -1.87%, stocks also fell in Hong Kong, with the Hang Seng declining by -0.85%.

Market Moves of the Week:

In local news, the Absa Purchasing Manager Index (PMI) reported that factory activity in South Africa shrank once again in March. The seasonally-adjusted PMI fell to 48.1 in March, down from 48.8 points in February, which marked the second straight month of remaining below the threshold of 50 points that separates expansion from contraction. This decline was influenced by rotational power cuts (loadshedding) that resulted in the deterioration of local business conditions. Despite this setback, Absa stated that survey participants were more optimistic about business conditions in the future.

According to data released by Statistics South Africa (Stats SA) on Thursday, electricity production in February 2023 decreased by 9.7% year-on-year, following an 8.8% decrease in January. Meanwhile, electricity consumption in February 2023 also declined by 8.7% year-on-year. According to load shedding data, visualised by The Outlier, South Africa has experienced some form of load shedding for all 97 days in 2023 thus far.

This week, the JSE all-share index fell by -2.40%, with the industrial sector leading the losses at -3.04%, followed by financials at -2.77%, and resources at -0.87%. The property sector also contributed to the week’s losses, ending with a weekly loss of -0.27%. The rand also depreciated over the week, ending at R18.19 to the dollar.

Chart of the Week:

Although employers in the U.S. maintained a steady hiring pace last month, there were indications of a cooling labour market. The Labour Department reported that payrolls grew by 236,000 for the month and that the unemployment rate ticked lower to 3.5%, while average hourly earnings rose 0.3%, pushing the 12-month increase to 4.2%, the lowest level since June 2021. Market pricing shifted following Friday’s report, with traders now expecting the Fed to implement one last quarter percentage point hike in May.