Investor Confidence Boosted After US Data Slowdown

US indices ended higher on Tuesday, August 29, following the release of July’s job openings data (JOLTS), as investors took it as a sign of cooling in the labour market, potentially changing the course of the Fed’s interest rates hiking path. The S&P 500 (USA 500) rose 1.5%, the Nasdaq (US Tech 100) saw an advance of 1.7%, and Dow Jones (USA 30) ended the session 0.9% higher on Tuesday. Consumer Confidence (CCI) data also pointed to slowing inflation after a hot report in July, bringing Fed Chair Jerome Powel’s remarks from the Jackson Hole meeting into focus. 

Aside from US data and narratives related to US inflation, several indices were upbeat on China’s new economic support measures on Tuesday. European and Asian stocks saw gains as investors responded positively to recent efforts by Beijing to support China's financial markets. The French 40 (FCE) index closed 0.7% higher, Germany's 40 (FDAX) rose 0.9%, while Hong Kong's 50 (HSI) index rose 2%.

US Data Show Cooling in the US Economy

Weak data on job openings and consumer confidence suggested that the Fed’s efforts to curb inflation were having an impact. 

The number of job openings (JOLTS) in July unexpectedly fell to only 8.8 million, compared to the 9.5 million economists expected, mainly impacted by professional and business services, health care, and government. With the Fed still worried about rapid wage growth and a burning desire to see a cooling labour market to combat high inflation, investor confidence got a boost. 

Additionally to weakening labour figures pointing to a softening in the US economy on Tuesday, consumer confidence also declined at a pace faster than economists expected. Consumer confidence experienced a substantial drop in August, reversing the growth seen in the previous two months, as reported by The Conference Board. 

The coincidence with the fall in job vacancies led investors to the safety of bonds in response to the economic uncertainties. The benchmark 10-year note notched down from 4.21% on Monday to 4.11% on Tuesday, with the dollar index seeing a 0.46% drop. The greenback weakened against the euro as well, bringing the rate of the EUR/USD to $1.08781 as of Tuesday's close. At the same time, gold (XAU) prices increased by about 0.9% following the latest data on Tuesday, as it was seen as giving the Fed some flexibility in its monetary policy.

Extraneous Market Driver: China

Investors welcomed Beijing's latest efforts to support China's financial markets on Tuesday. China's finance ministry reduced its levy on share trading, the first such reduction since the 2008 financial crisis, to support China’s capital markets. Moreover, the Securities Regulatory Commission in China promised to slow down initial public offerings (IPOs) to prevent decreasing valuations. Beijing's measures aim to rejuvenate the economy, which has struggled to recover from strict Covid-19 lockdowns.

Although the new measures do not fully address investor concerns, such as boosting the economy, analysts believe that reducing stamp duty on securities transactions could spur trading and increase confidence. (Source:The Wall Street Journal)

Chinese stocks were in a rebound mode Tuesday as the latest big stimulus measures, including mortgage-rate cuts and lower down-payment requirements for second-home buyers, have reduced stock costs. However, there are concerns about whether this is a weak signal and if the stimulus measures will have a lasting impact. The Chinese authorities are taking steps to cut trading costs and stimulate the economy as they have several tools at their disposal.

Reportedly, the Bank of Communications, one of China’s biggest banks, will hold a meeting to discuss the repricing of outstanding mortgages after the People's Bank of China announced the adjustment on interest traits to existing mortgages in early August. If the PBOC cut the reserve requirement ratio (RRR) to reduce banks' funding costs and stabilise liability costs, it would simultaneously alleviate the pressure caused by tight liquidity.

Conclusion

US indices ended higher on Tuesday, August 29, driven by positive reactions to the release of July's job openings data (JOLTS) and Consumer Confidence data. The S&P 500, Nasdaq, and Dow Jones all saw gains as investors interpreted the data as a sign of cooling in the labour market, potentially impacting the Fed's interest rate hiking path. European and Asian stocks also saw gains due to China's new economic support measures. 

Some investors sought safety in bonds, which led to decreases in the benchmark 10-year note yield and a weakening of the dollar. Traders may want to monitor US inflation and labour market data and developments in China's economy as the latest measures to support its financial markets may not have a lasting impact.