This week, U.S. macroeconomic data suggests the economy is steering towards a soft landing, although there are clear signs of cooling. Growth in durable goods consumption is slowing, with core durable goods consumption already in negative growth. Unemployment benefit claims decreased compared to the previous week and came in below expectations. The core PCE data met expectations, rising by 0.1%, marking the smallest increase in recent times. The University of Michigan’s inflation expectations were 3%, lower than the anticipated 3.3%. Overall, the data indicates stable unemployment, a slowing economy, and easing inflation.
The market responded accordingly. In the equity markets, the U.S. Nasdaq index entered an upward channel again, reaching a record high of 20,017.31 points last Friday. The Dow Jones, however, did not follow suit to return to its historical high. In contrast, European capital markets did not perform as well, with stock indices in France, the UK, and Germany mainly experiencing sideways movement and declines.
In the fixed-income market, during the first half of last week, the yield on U.S. 10-year Treasury bonds hovered at low levels, and the U.S. dollar index reached a high of 106 points. Late Friday evening, considering political uncertainties in Europe and the U.S. — such as the rise of populism in France and potential fiscal indiscipline, along with an increased likelihood of Trump’s return, whose policies support the stock market and high tariffs, potentially reinforcing long-term inflation — the yield on 10-year U.S. Treasury bonds rose rapidly, while the 2-year Treasury yield did not show a significant increase.
The cryptocurrency market did not perform well this week. Despite the Nasdaq’s continuous rise and positive macroeconomic data last Friday, Bitcoin and Ethereum did not see substantial increases, indicating weak upward momentum. Even the positive news of Cathie Wood’s fund applying for a SOL ETF did not significantly change market sentiment.
Upcoming Data to Watch
Key data to watch next week include the U.S. ISM Manufacturing and Services PMIs, Jerome Powell’s speech, U.S. JOLTs job openings, ADP non-farm employment change, the U.S. non-farm payrolls, and the U.S. unemployment rate.
Monday : The ISM Manufacturing PMI data will be released at 10:00 PM, with an expected value of 49.2 compared to the previous 48.7. Considering last week’s better-than-expected Chicago PMI data, the ISM data might also exceed expectations, which could be unfavorable for rate cut expectations and thus bearish for equity markets.
Tuesday : Powell’s speech at 9:30 PM. Given the significant rise in 10-year Treasury yields this week, Powell is likely to calm the market rather than exacerbate tensions. Therefore, the performance of the capital markets on Monday will be crucial in predicting Powell’s remarks. The JOLTs job openings report will be released at 10:00 PM, with an expected 7.86 million compared to the previous 8.06 million. The labor market remains strong overall, so it might come in lower than expected.
Wednesday : The ADP non-farm employment change will be released at 8:15 PM, with an expected 156,000 compared to the previous 152,000. The market generally expects a strong labor market, and we share this view. It is likely to exceed expectations but be lower than the previous Labor Department’s figures. At 10:00 PM, the ISM Services PMI will be released, with an expected 52.5 compared to the previous 53.8. We also lean towards a higher-than-expected figure since the U.S. economy currently shows a split, with the services sector outperforming manufacturing.
Friday : Two significant employment reports will be released at 8:30 PM: the Labor Department’s non-farm payrolls and the unemployment rate. Given the previous Labor Department data exceeded expectations, causing market shocks, there is a common belief of potential data manipulation. We anticipate the seasonally adjusted figures will decline and converge with the ADP non-farm data. The unemployment rate is the most critical data point this week, determining whether the Fed will cut rates sooner. If the unemployment rate rises rapidly, it will undoubtedly prompt the Fed to cut rates ahead of schedule, making two rate cuts within the year a certainty. If the unemployment rate is higher than expected, there might only be one rate cut.
Market Outlook
Overall, this week is likely to continue with high-level volatility. Political uncertainties and contradictory macroeconomic data suggest that market disagreements will not be resolved in the short term, requiring more time for consensus. Until then, it is essential to control positions and focus on short-term trading. Overall, we are inclined to be bearish on the equity markets this week.