US equity markets closed on a mixed note on Friday, reflecting a complicated economic landscape. Although the labor market exceeded expectations in terms of job growth, an uptick in the unemployment rate and declining manufacturing activity muddled the overall picture.
The Dow Jones Industrial Average inched up by 0.3% to close at 34,837.7, while the S&P 500 posted a modest gain of 0.2%, ending at 4,515.8. Meanwhile, the Nasdaq Composite remained virtually unchanged, closing at 14,031.8.
Employment Data Takes Center Stage
Last month’s non-farm payrolls data surpassed projections, posting an increase of 187,000 jobs, against a consensus expectation of a 170,000 gain. Despite this upbeat news, the unemployment rate unexpectedly edged up to 3.8% from 3.5% in July, raising eyebrows among analysts.
Additionally, average hourly earnings grew by just 0.2% month-over-month, falling short of the anticipated 0.3% increment. This marks the smallest monthly hike in nearly 18 months, adding another layer of complexity to the Federal Reserve’s calculus ahead of its upcoming meeting.
According to the CME FedWatch Tool, the likelihood of the Federal Open Market Committee (FOMC) leaving its benchmark lending rate untouched later this month increased to 93%, a hike from Thursday’s 88%. The remaining odds pointed toward a 25 basis-point increase.
A Troubling Sign in Manufacturing
US manufacturing activity in August remained in contraction territory, with the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) rising to 47.6 from July’s 46.4. The under-50 reading indicates a general contraction in the sector, providing the Fed with additional rationale to end its interest rate hiking cycle.
Forex Markets: USD’s Mixed Bag
The forex market showed varying dynamics last week. The EUR/USD experienced its seventh consecutive weekly decline, while the GBP/USD pair navigated a precarious sideways trend with downside risks. USD/JPY hovered around 146.00 in a week marked by high volatility.
Commodities and Digital Assets: WTI Crude Leads the Charge
West Texas Intermediate (WTI) crude oil surged by 2.7% to $85.90 per barrel, buoyed by supply cuts from key players like Saudi Arabia and Russia. On the digital front, cryptocurrencies faltered as the SEC delayed its decision on spot Bitcoin ETF applications, resulting in a decline of Bitcoin to $26,100.
Markets in the US and Canada will remain closed for Labor Day. Investors should also watch out for the RBA’s monetary policy decision and a host of other economic data releases that could influence trading strategies this week.
Given the mixed indicators, traders are advised to adopt a cautious approach. While the employment data suggests bullishness for the US Dollar, the contraction in the manufacturing sector and the ambiguous forex trends call for vigilant risk assessment and position sizing.