The key news story for markets on Friday was the US Non-farm Payrolls for November, which came in at 263k jobs added, well ahead of consensus at 200k. There was also an upward revision to the October reading from 261k to 284k. The unemployment rate nevertheless held firm at 3.7% and wage growth was also firmer than expectations at +0.6% annualised, its fastest rate so far this year.
As such, with US firms hiring more workers than expected in November the prospect of an imminent recession just got pushed back, but arguably so did any Federal Reserve ‘pivot’ to end its monetary tightening.
The initial reaction across markets was negative, as the report countered the more dovish signals in Fed chair Powell’s speech on Wednesday, but equities and bonds strengthened through the trading session.
The S&P 500 closed down -0.1%, whilst the NASDAQ fell -0.2% and the Dow Jones was up +0.1% as investors shrugged off the strong jobs report and putting more weight on the recent commentary from the Fed chair.
Asian markets were mixed overnight, although it is worth highlighting very strong gains in Hong Kong (which closed up +4.5%) as more signs that China’s zero-COVID policy is in the process of shifting.
The question is now what toll this has taken on both public health and the battered economy. Investors, overnight, bid up Chinese equities on hopes a rapid reopening will allow production to normalise and pent-up demand be released. Yet, as COVID policy get decentralised to local authorities, this could result in a chaotic period ahead, potentially causing the Chinese economy to worsen before it materially improves.
From an economic stance, the good news is the overall intensity of lockdowns has peaked after major cities eased restrictions last week. As such, whilst reporting thousands of new COVID cases a day, Guangzhou moved to allow restaurants and entertainment venues to reopen, while other cities eased testing requirements and consumer restrictions. Messaging from state media seems to be preparing the way for a managed reopening on the grounds the new COVID variants are less deadly to the population, although the constraint is most cities cannot move quickly without potentially triggering a surge in cases that might overwhelm hospitals. As such decisions among a few key cities about whether to loosen controls in the coming weeks should give a strong guide to the speed of the overall reopening.