US and European stocks retreated on a very disappointing US employment report.
United States
Stocks declined after the employment report disappointed, but managed to recoup most of their losses by the end of the trading day. Investors fled to safe havens and sent bond prices surging while the US currency declined against its major counterparts. Banks and other financial companies led the decline. The Dow Jones industrials were down 0.2 percent and down 0.4 percent on the week. The S&P declined 0.3 percent but was virtually unchanged for the week. The Nasdaq lost 0.6 percent Friday but managed to climb 0.2 percent on the week.
May employment only increased 38,000 instead of the 158,000 expected. To make matters worse, the previous two months were revised lower by a total of 59,000 jobs. The unemployment rate dropped to 4.7 percent but for the wrong reason. People left the labour force. The data appeared to convince traders that the Federal Reserve will no longer consider increasing its fed funds rate at the FOMC meeting on June 14 and 15. Other data reports Friday were mixed. The ISM nonmanufacturing index grew at the slowest pace in more than two years while factory orders posted a healthy increase.
ETrade Financial, Charles Schwab, Bank of America and Citigroup declined. Broadcom climbed after the communications chip maker posted a bigger-than-expected profit in its fiscal second quarter. Ambarella gained after the company’s profit and revenue topped expectations. Gap advanced after the company reported on Wednesday that sales at established stores declined 6 percent in May, better than the 7 percent drop expected.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$28.10 to US$1,240.50. Copper futures were up 2.1 percent to US$2.11. WTI spot crude was down 55 US cents to US$48.62. Dated Brent spot crude was down 40 US cents to US$49.64. The US dollar was down against all of its major counterparts including the yen, euro, pound, Swiss franc and the Canadian and Australian dollars. The dollar index was down 2.1 percent. The yield on US Treasury 30 year bond was down 7 basis points to 2.51 percent while the yield on the 10 year note declined 11 basis points to 1.70 percent.
Europe
Most stock indices tumbled Friday after the May US employment increase was much weaker than anticipated. The markets were relatively flat ahead of the report, but declined steadily after its release. However, the markets pared losses in late trading. The weak report shifted opinion on the possibility of a June fed funds increase. The FTSE climbed 0.4 percent on the day but retreated 1.0 percent on the week. Both the CAC and DAX lost 1.0 percent on the day and were down 2.1 percent and 1.8 percent respectively on the week. The SMI declined 0.7 percent and 1.7 percent.
According to the Bundesbank, Germany’s economic growth is robust, supported by domestic demand and a strong labor market. However, the economy will expand at a slower pace going forward because of sluggish exports. The Bundesbank expects GDP to grow 1.7 percent this year, down from the Bank’s previous forecast of 1.8 percent. The French economy is expected to grow at a slightly lower pace than projected according to the Bank of France. The BoF said gross domestic product will expand 1.5 percent next year instead of 1.6 percent.
RWE surged on a broker upgrade. Banks including Deutsche Bank, Commerzbank, BNP Paribas, Crédit Agricole and Société Générale retreated. Automakers also declined. In Paris, Accor jumped on a report that China’s Jin Jiang plans to increase its stake in the hospitality company to 29 percent. Airbus Group dropped after Europe’s air safety regulator grounded Airbus H225 LP and AS332 L2 Super Puma helicopters following the discovery of a potentially catastrophic gearbox fault afflicting both types. BP was up after agreeing to settle a class action lawsuit.
Asia Pacific
Stocks advanced Friday. Investors were looking ahead to the US employment report which would be released after markets here closed for the week. Gains were capped by a stronger yen and weak data from China.
The Shanghai Composite was up 0.5 percent Friday and 4.2 percent for the week — its best weekly gain since March as hopes for inclusion of A-shares into the world’s biggest indexes helped investors shrug off the disappointing services sector data. May services sector activity slowed to a reading of 51.2 down from 51.8 in April. The Hang Seng added 0.4 percent and 1.8 percent for the week.
The Nikkei advanced 0.5 percent but was down 1.1 percent on the week. Fast Retailing jumped after it reported a 5.9 percent increase in its Uniqlo store sales last month. Takata gained on rumors that Bain Capital and PAG Asia Capital are exploring bids for the embattled airbag maker. May services PMI expanded with a reading of 50.4, up from the contractionary level of 49.3 in April.
The S&P/ASX was up 0.8 percent on the day and lost 1.6 percent on the week. The All Ordinaries added 0.7 percent on the day and was 1.4 percent lower for the week. Banks and miners advanced. The Kospi was virtually unchanged and was up 0.8 percent from a week ago. The Sensex was also unchanged on the day and added 0.7 percent on the week. Investors were cautious prior to the release of the US employment report.
Global Stock Markets

Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*

Central Bank activities

June 7

Australia

Reserve Bank of Australia Monetary Policy Announcement

India

Reserve Bank of India Monetary Policy Announcement

June 9

New Zealand

Reserve Bank of New Zealand Monetary Policy Announcement

The following indicators will be released this week…

Europe

June 6

Germany

Manufacturing Orders (April)

June 7

Eurozone

Gross Domestic Product (Q1.2016 revised)

Germany

Industrial Production (April)

France

Merchandise Trade (April)

June 8

UK

Industrial Production (April)

June 9

Germany

Merchandise Trade (April)

UK

Merchandise Trade (April)

June 10

France

Industrial Production (April)

Italy

Industrial Production (April)

Asia/Pacific

June 8

Japan

Gross Domestic Product (Q1.2016 revised)

China

Merchandise Trade (May)

June 9

Japan

Machinery Orders (April)

China

Consumer Price Index (May)

Producer Price Index (May)

June 10

Japan

Producer Price Index (May)

Americas

June 7

United States

Productivity & Costs (Q1.16 revised)

June 8

Canada

Housing Starts (May)

United States

JOLTS (April)

June 9

United States

Initial Unemployment Claims (week ending prior Saturday)

June 10

Canada

Labour Force Survey (May)

United States

Consumer Sentiment (June preliminary)

*Note — all releases are listed in local time.

Source: Fidelity

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