Weekly comment: Mixed US jobs report gives markets cause for a pause

Market overview – Richard Carter, Head of Fixed Interest Research

Global stock rose once more last week, however some softness in the US into the weekend suggests that markets may be entering a consolidation phase after a strong run higher in recent months. The MSCI All Country World Index gained 0.6%, taking year-to-date gains to 6.4%.

A fairly mixed US employment report on Friday preceded some of the selling. The headline figure showing 275k jobs added in February was undoubtedly positive, but this strength was tempered somewhat by significant downward revisions to previous months (January’s figure now stands at 229k, down from 353k) and an unexpected rise in the unemployment report to 3.9% from 3.7%. Wages rose less than forecast in another sign of some easing in tight labour market conditions.

Stocks initially jumped higher on the news, but sellers entered into the close and US benchmarks moved into negative territory on the week, falling 0.2% to trim 2024 gains to 7.7% Broad-based indices and tech indices both chalked up all-time highs last week and it is not too surprising to see some profit taking after such a strong run higher since October.

The data is unlikely to have had much impact on rate setters ahead of the Federal Reserve’s monetary policy decision next week. No change is expected but market participants will be watching closely for any comments relating to the probability of a first interest rate cut in the summer.

NI cut in modest Budget

A 2p reduction in employee national insurance rates was the headline change in UK chancellor Jeremy Hunt’s Spring Budget, which on the whole was more steady than spectacular. Given the nature of the latest fiscal update it appears unlikely to be seen as a launch pad for a May election and there could well be another statement before Britons are sent to the polls. The move in national insurance follows a same-sized reduction in the Autumn Statement and puts the rate at 8% from 6 April, a 4p reduction estimated to be worth an average of £900 a year to 27m workers.

There was also a change to make child benefit rules more generous, with the giveaways partly funded by plans for a tightening of tax status on non-domiciled residents. The bond market showed little clear reaction to the announcement, with the 10-year gilt yield falling 14 basis points on the week to end at 3.97%.

UK stocks continue to oscillate between positive and negative territory for 2024, rising 0.1% on the week to take year-to-date performance to -0.1%. Mid-cap stocks did better, perhaps encouraged by the introduction of a “British ISA” which means an additional £5,000 annual allowance for London-listed shares. The pound strengthened to 1.29 against the US dollar, but this was likely more due to a depreciation of the greenback rather than clear sterling strength.

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