After a morning dominated by the fallout of Silicon Valley Bank’s capital raise, markets were dealt a US jobs report that presented more questions than answers about the strength of the US economy.
The US economy added 311,000 in February, smashing estimates of 225,000. However, the US unemployment rate rose to 3.6% and wages were slightly softer.
Today’s data confirmed resilience and even strength in the US economy despite persistently high rates of inflation. While this is good news for the US economy, the higher unemployment rate and softer wage growth makes the next decision on interest rates a tough one to call. This was reflected in seesawing market moves after today’s US jobs report.
A horrible truth for markets is the Federal Reserve doesn’t need to rein in their rate hikes until the real economy starts to suffer. US CPI next week will have a big influence on whether the Fed hikes 50bps or 25bps at their next meeting.
The FTSE 100 was deep in the red before the US jobs report and remained around 1.6% down after the release.
S&P 500 futures were pointing to a higher open after finishing down heavily yesterday.
The FTSE 100’s banks were the most severely beaten down stocks on Friday, although they had recovered from their worst levels.
HSBC was trading down 5% and Barclays was down 3.8% to 157p. Barclays has traded below 154p on Friday morning.
Most FTSE 100 stocks were in the red on Friday with defensive dividend payers the only shares gaining. National Grid was 1.1% higher and BT added 0.8%.
UK growth surprise
The chaos surrounding SVB and the US jobs report has overshadowed a pleasant surprise in UK GDP growth in January. The UK economy grew 0.3% as the Premier League returned after the World Cup and more children returned to school.
However, there were warnings the good news could be short-lived and the general trend suggests further economic downside.
“The underlying trend in the economy appears to be one of gradual contraction, thanks in part to an ongoing downtrend in retail spending. We’re expecting a technical recession in the UK in the first half of this year, albeit one that’s not as bad as first feared,” said Tom Hopkins, Portfolio Manager at BRI Wealth Management.