Week Dominated by the U.S. Labor Market

Throughout the week, trading activity increasingly revolved around this event, with volumes across global markets falling below long-term averages (a trend that can largely be attributed, at least in part, to the summer holiday period as well).

Developments in Asia

Japan’s Nikkei 225 equity benchmark lost 315 points over the week, a decline of 1.5%. Friday’s close was 16,254, leaving the index down more than 15% year-to-date. For context, the Japanese currency has moved in the opposite direction, appreciating by roughly 16% since the start of the year.

The key development in Asian markets was Tuesday’s approval by Prime Minister Shinzo Abe of an expanded stimulus package amounting to JPY 28.1 trillion (USD 275 billion), in another effort to revive the domestic economy, weaken the currency, and avoid deflation. The package includes additional spending on infrastructure and social services.

In Australia, markets were driven by the Reserve Bank of Australia’s decision to cut its policy rate by 25 basis points to a record low of 1.5%, reflecting concerns about persistently subdued inflation. As a result, yields on 10-year government bonds also fell to an all-time low of 1.83%. The Australian dollar barely reacted, as the move had largely been priced in ahead of the announcement.

Developments in Europe

Despite a strong rally toward the end of the week, most major European equity indices finished modestly in negative territory. The main fundamental driver was the Bank of England’s policy meeting, at which it lowered its key interest rate by 25 basis points, from 0.5% to 0.25%. Even at this historic low, the central bank did not rule out further cuts in the coming months. Alongside the rate reduction, the Bank introduced a new stimulus package, including purchases of corporate bonds.

Developments in the United States

As noted at the outset, market action in North America in particular was shaped by positioning ahead of Friday’s U.S. labor market data. The release injected a strong dose of optimism into markets and, after nearly three weeks of sideways trading, equities rallied sharply.

In July, the U.S. economy added 255,000 jobs, far exceeding analysts’ expectations of 180,000. The labor-market surprise pushed major indices into positive territory and in some cases back toward fresh record highs. The S&P 500 rose 0.86% on Friday to 2,182. The Dow Jones Industrial Average advanced 1.04% to 18,543. The tech-heavy Nasdaq outperformed again, gaining 1.06% to close at 5,221.