Last Friday, after the release of the data on US Non-Farm Payrolls (NFP), U.S. stocks surged with excitement. Of all eleven sectors of S&P rose across the board, and of which, 8 sectors jumped by more than 2%. Only the medical sector, which performed fairly well earlier on, registered a smaller increase, that was less than 1%. It can be seen from the NFP data that 223,000 new jobs were created in December, higher than the expected 205,000; the main new jobs came from leisure, housing, medical & health and construction industries; and the unemployment rate continued to show a downward trend, posted at 3.5% which was in line with market expectations.
But from a medium-term perspective, the above data may reflect that the demand in the United States is relatively weak during the holidays. Although various leisure and entertainment venues have increased their manpower to cope with the holidays. Due to a rather lacklustre demand or consumption, there is no need to increase wages to cope with peak season like Christmas. In other words, since the consumer demand during the Christmas season was weak, then there should be no scenario that can promote the hikes in wages. To digest this figure more meaningfully, the wage increase in November has been revised down from the original 0.6% to 0.4%.
The current view held by the market participants is that the labour market continues to cool down, which would make the Federal Reserve to turn dovish in the second half of the year when the economy enters a recession. However, if the job data released in the next few months does not paint a gloomy manner, then there is a high chance of a callback after this round of rebound.
In addition to the NFP data, another factor that adds optimism to the bourse is that the Purchaser Managers’ Index (PMI) for service industry released by the US Institute of Supply Management (ISM). This figure also showed a major signal of reversal. In December, the U.S. PMI for service sector was 49.6, which is far below the expected 55 and 56.5 in November. It must be noted that this is the first time since the epidemic that it has fallen below the boom-bust line, and among the 11 sub-items, all have declined, and 4 of them have even experienced serious recessions. For example, the volume of new orders fell sharply from an expanding 56 to a shrinking 45.2.
According to the data released this time, the service industry has undergone huge changes, from a sudden boom in November to a sharp decline in December. The sharp increase in inventory data also reflects that companies will remain pessimistic for 2023. In other words, the current stock market is excited by the Federal Reserve’s less hawkish attitude. The December retail sales data will be released on January 18, and generally speaking, it is expected to be weak. Hence, interest rate hikes are expected to be slowed down as a result of these factors.
If the rate hikes are tamed, it may be the time for the regional bourses to bounce back. Local bourse included, assuming the political scene remains stable. Perhaps. We will see!
