European stock markets demonstrated resilience on September 4, 2023, as the broad STOXX 600 index experienced a modest increase of 0.1 percent. The positive momentum sparked by improved manufacturing data, however, appeared to wane as the day progressed. Meanwhile, shares in Asia, particularly those of Alibaba, surged significantly, with the Chinese tech giant’s Hong Kong-listed stock soaring by 18 percent following an announcement that artificial intelligence (AI) had driven remarkable growth in its cloud business.
As trading continued, the focus shifted to the United States, where a holiday had left futures flat. Investors are bracing for a crucial week of economic data, which includes surveys on manufacturing and services, culminating in the highly anticipated employment numbers due on August 7. Analysts predict that 75,000 jobs were added, although estimates vary widely, with some anticipating a gain of up to 110,000 jobs, while others forecast no growth at all. The unemployment rate is expected to rise slightly to 4.3 percent.
The state of the jobs market is critical for the Federal Reserve, as it heavily influences monetary policy decisions. Samy Chaar, chief economist at Lombard Odier, remarked, “The jobs market is the number one factor for the Federal Reserve’s policy path. There’s lots of talk from the Fed and from market commentators that labor markets are cooling, leading to a rate cut in September, but it’s not a clear-cut situation.” This week is being viewed as pivotal for future economic direction.
Concerns regarding US tariff policy also loom large, particularly following a Court of Appeals ruling that deemed many of former President Donald Trump‘s import tariffs illegal. These tariffs will remain in place until mid-October, pending an appeal to the Supreme Court. While the White House can still impose sectoral levies, this situation raises uncertainties regarding existing trade agreements, particularly negotiations with Japan and South Korea, which have encountered significant hurdles.
In Europe, investor attention turned to France as Prime Minister Francois Bayrou initiated discussions with various political parties. This effort aims to prevent a potential government collapse ahead of a confidence vote scheduled for next week. Although markets stabilized after initial concerns regarding the vote, the prospect of political instability could further impact France’s financial outlook. The gap between French and German 10-year bond yields widened sharply last week, reaching a peak of 78 basis points.
Mohit Kumar, chief European economist at Jefferies, expressed skepticism about the government’s chances in the no-confidence vote, stating, “We see more than even odds that the government fails the no-confidence vote. It is likely to lead to a period of political uncertainty and a possibility of early elections.” The fiscal situation in several countries is causing long-dated bond yields to rise, with German 30-year yields hitting a 14-year high of 3.38 percent.
As European bond yields increased, the euro gained strength, trading at $1.1721, an appreciation of 0.4 percent. In the commodity markets, gold benefitted from the weakened dollar and the prospect of lower interest rates, increasing by 2.2 percent last week, with prices reaching a four-month high of $3,481 per ounce. Oil prices also experienced gains, with Brent crude rising by 0.9 percent to $68.01 per barrel, amid concerns about rising output and the impact of US tariffs on demand.
Overall, while European markets remained stable, the upcoming economic data from the United States and the political situation in France are expected to keep investors on edge in the coming days.
