Vinod Bhat's Market Pulse - Aug 8, 2022
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Global macro developments have come to the fore once more to dominate the narrative for markets.
US employers added 529K workers vs 250K estimated. The unemployment rate also fell to 3.5% and wages grew 0.5% mom. The strong jobs report validated the Fed’s view of a resilient economy that can withstand additional interest-rate hikes.
Although this data is backward looking and inflation data for July and August will ultimately be the key factors, markets have now recalibrated expectations for Fed policy, with a hike of 75 bps the more likely scenario at the Fed’s September meeting.
Short-term yields have risen with the US 2-yr yield now 40 bps higher than the 10-yr yield. The last time the US yield curve was so inverted was in 2000.
US-China tension also remains among the uncertainties clouding the outlook. China announced it would halt cooperation with the US in a number of areas, including working-level talks on climate change and defense, after US House Speaker Nancy Pelosi’s trip to Taiwan. China also sent warships across the Taiwan Strait’s median line in the first such incursion in years, a day after firing missiles over Taiwan.
On the positive side, the Q2 CY22 earnings season in the US is winding down with 87% S&P 500 companies having reported results. Among those firms, 75% reported a positive earnings surprise. A largely upbeat Q2 earnings season has helped the S&P 500 bounce back by about 13% from its mid-June lows.
Also, Brent crude prices have fallen to $94/bbl on concerns of a global economic slowdown which is beneficial for India. FIIs have also started coming back to India with inflows of USD 1.4 Bn in the first week of Aug which is positive for markets.