Global Markets: Caution on Wall Street Ahead of Employment Data, Chinese Exports Surpass All Expectations

The New York Dow Jones index rose by 78.84 points or 0.2 percent, to 38,886 points, while the S&P 500 index weakened by 0.02 percent, to 5,352 points, and the Nasdaq by 0.09 percent, to 17,173 points. The latter two reached new record levels during trading but then changed direction primarily due to falling prices in the technology sector.

The price of Nvidia shares fell by 1.1 percent, and this chip manufacturing company is again ranked third in the world by market capitalization, after briefly rising to second place, ahead of Apple.

Investors are cautious ahead of the release of key employment data for the U.S. economy in May. Data on industrial activity, the ADP employment report, as well as yesterday’s data on weekly unemployment indicated that the labor market is weakening, which could prompt the Fed to start lowering interest rates in September. The European Central Bank on Thursday lowered the interest rate by a quarter of a percentage point for the first time since 2019.

– The market is pausing before the employment data. This is not unusual; the day before, the indices reached record levels, and today people are taking positions they want to be in before the release of that key data – explains Bill Strazzullo, a strategist at the investment firm Bell Curve Trading in Boston.

Traders estimate the chances that the Fed will lower interest rates in September at 68 percent, and they are pricing in rate cuts on two occasions by the end of the year.

On European exchanges, the pan-European STOXX 600 index reached a record 524.68 points on Thursday, after the ECB lowered interest rates. At the same time, the Frankfurt DAX rose by 0.41 percent, to 18,652 points, the London FTSE by 0.47 percent, to 8,285 points, and the Paris CAC by 0.42 percent, to 8,040 points.

Focus on Chinese and Japanese Indicators

On Asian exchanges, the major indices on Friday had mixed signals as investors consider the latest indicators from the two largest Asian economies, China and Japan, as well as the latest move by the European Central Bank, which lowered interest rates for the first time since 2019.

The MSCI Asia-Pacific index excluding Japan was up 0.3 percent around 6:00 AM, on track for a weekly gain of 3 percent.

At the same time, the Japanese Nikkei was slightly down by 0.14 percent, as were the Chinese exchanges, with the Shanghai down by 0.23 percent and the Hong Kong exchange by 0.42 percent, while the South Korean index was up by 0.94 percent and the Australian by 0.25 percent.

The latest data on Chinese exports in May exceeded expectations, strengthening by 7.6 percent year-on-year, significantly higher than the 1.5 percent growth recorded in April. At the same time, imports strengthened by 1.8 percent, significantly less than the expected 4.2 percent.

However, these data were overshadowed by negative media reports. Risk appetite in the second-largest economy in the world worsened after a group of U.S. lawmakers stated that leading Chinese battery manufacturers with ties to Ford Motors and Volkswagen should be banned from shipping goods to the U.S., reported the Wall Street Journal.

Japan, on the other hand, released data on household consumption in April, a key indicator for the Bank of Japan to determine whether the ‘virtuous cycle’ of wage and price growth is occurring. The latest data showed that household costs in April rose by 3.4 percent nominally, or 0.5 percent in real terms, to 313,300 yen, marking the first increase in real consumption of Japanese households since February 2023, but still lower than forecasted.

Dollar Near Lowest Level

In the foreign exchange markets, the dollar index on Friday hovered around its lowest level in the last eight weeks against a basket of the world’s major currencies, ahead of a key employment report in the U.S., which is expected to provide guidance to investors regarding the Fed’s interest rate cuts in September.

The dollar index, which tracks the performance of the U.S. currency against six major world currencies, was trading at 104.13 points this morning, close to this week’s lowest level of 103.99 points, which it first touched on April 9.

Since the beginning of the week, it is on track for a decline of half a percent, influenced by weak U.S. indicators this week, which raised expectations that the Fed will indeed reduce interest rates on two occasions this year.

The euro exchange rate is up by 0.2 percent compared to yesterday’s closing, trading at 1.0889 dollars this morning, after the European Central Bank lowered interest rates.

The U.S. currency, on the other hand, slightly strengthened against the yen, at 155.85 yen, but is on track for a weekly decline against the Japanese currency of nearly one percent.