The first week of the New Year brought choppiness and stress to the global markets, but ended on an upbeat note. Manufacturing slumps in China, Europe and the United States put investors on alert for slowing economic activity. Trade uncertainty exacerbated the edginess after Apple cut revenue expectations for the first time in over 15 years, citing weakening iPhone sales in China.
Markets rebounded firmly on Friday, however, taking a boost from comments by Federal Reserve Chairman Jerome Powell that the Fed will be “patient” as the economy evolves, and that it is listening to the market’s concerns. On the economic front, December’s nonfarm payrolls report strongly surpassed expectations. China stayed in the mix as its central bank cut the reserve rate and promised other policy fine-tuning measures.
Brent crude and gold prices rose modestly. Bond prices fell after the strong jobs report. The widely watched 10-year U.S. Treasury yield fell to 2.56% midweek, but rose Friday to about 2.67%. The U.S. dollar declined slightly on the week.
The Labor Department reported that U.S. nonfarm payrolls rose by 312,000 in December, the biggest gain since February. U.S. payrolls have grown for 99 straight months, the longest stretch of steady hiring on record. Average hourly earnings rose 0.4% from November and 3.2% from December 2017, the largest full year gain in ten years.
The unemployment rate climbed to 3.9% from 3.7% in November as more people entered the workforce. December’s labor force participation rate rose to 63.1%, matching its highest level since 2014.
December ISM manufacturing surprised to the downside. The headline posted 54.1, below November’s 59.3. It was the indicator’s largest monthly drop in a decade. New orders represented an area of notable weakness. Respondent commentary was cautious and continued to cite China trade uncertainties.
The Caixin China General Manufacturing PMI index dipped from 50.2 in November to 49.7 in December, into contraction territory for the first time since May 2017.
Eurozone manufacturing continued to slow in December. The IHS Markit Eurozone Manufacturing PMI index registered 51.4, down from 51.8 in November but still in expansion territory.