Market update for the week of July 15, 2022

This week in the US, The stock market endured another volatile week that began with three days of selling and ended with a rebound that lifted the S&P 500 off its lowest level in nearly four weeks. Still, the benchmark index surrendered 0.9% for the week while the Nasdaq (-1.6%) underperformed and the Dow (-0.2%) finished with a slimmer loss for the week.

The June jobs report painted a picture of consistency and strength in the labor market. The U.S. economy added 372K new jobs, remaining in line with the 383K average monthly gain over the past 3 months. Job growth was widespread, boosted by education and health services (+96K), professional and business services (+74K) and leisure and hospitality (+67K.). We also saw employment in manufacturing (+29K) return to its pre-pandemic levels. The unemployment rate extended its streak of 3.6% for the fourth consecutive month as the number of unemployed Americans stayed nearly unchanged at 5.9M. The labor force participation rate also remained quite steady at 62.2% vs. 62.3% in May. Wage growth continues to cool modestly with average hourly earnings rising by 0.3% after a 0.4% climb last month.

At a time when recession speak dominates investment conversations, the consistent strength in the U.S. labor market should be viewed as a bright spot. It is an important tailwind for the U.S. economy against the risks of hotter for longer inflation and falling consumer sentiment. It is also worth noting that since employment is a lagging indicator, the June jobs report does not eliminate the risk of a recession starting soon. However, with such robust labor demand, it does suggest that the next economic downturn could be a relatively mild one for American workers. For now, the Fed should take the jobs report as a positive and remain focused on the inflation half of its dual mandate. Next week’s CPI report will be key to watch and should support another 75 bps hike this month.

Bank earnings for Q2 began coming in during the latter part of the week, starting with disappointing reports from JPMorgan Chase (JPM) and Morgan Stanley (MS). Comments from JPM CEO Dimon received a lot of attention after he expressed worries about unprecedented tightening in the face of significant global turmoil.

In terms of A-shares, last week, amid the U.S. inflation exceeding expectations and recession worries, commodity prices fell sharply, the inversion of U.S. bond two-year and ten-year interest rates deepened, the U.S. dollar index strengthened and triggered a depreciation of the renminbi. Domestic financial data in June Better than expected, but real estate-related issues dampened market risk appetite, and all major indexes fell. Among them, the Shanghai 50 fell 5.1%, the small and medium 100 fell 4.3%, the CSI 300 fell 4.1%, the Shanghai Composite Index fell 3.8%, the Shenzhen Component Index fell 3.5%, the Science and Technology Innovation 50 fell 2.9%, and the ChiNext Index fell 2.0%. In the industry, only power equipment and new energy rose, non-ferrous metals fell 5.9%, real estate fell 5.8%, computers fell 5.0%, and banks fell 4.8%. Last week, market transactions cooled down significantly, with the average daily turnover dropping to around 1 trillion yuan. The northbound capital also turned into a weekly net outflow of 22 billion yuan, mainly flowing into automobiles, machinery, construction, and out of banks, electronics, food and beverages.

As for Hong Kong stocks, overseas Chinese stocks continued to decline last week as data from the second quarter showed that China's economic recovery is still facing uneven challenges and concerns about real estate have risen significantly. Overall, the Hang Seng China Enterprises Index fell by 7.9%, and the Hang Seng Technology Index, MSCI China Index and Hang Seng Index fell by 7.7%, 7.3% and 6.6% respectively. In terms of sectors, all sectors fell. The real estate sector led the decline, down more than 14.5%, while the consumer discretionary, insurance and media preview sectors also underperformed, falling 9.1%, 9.0% and 7.8%, respectively. The net inflow of funds from Hong Kong Stock Connect last week was 2.111 billion yuan, mainly in the information technology industry, industry, and energy industry, and out of the real estate and construction industry, non-essential consumption, and financial industry.

In terms of major global asset prices, international oil prices rose across the board, with the U.S. oil August contract up 1.89% to $97.59 a barrel. The September contract for Brent oil rose 2.08% to $101.16. This week, the US oil August contract fell 6.89%, and the Brent oil September contract fell 5.5%. International precious metal futures generally closed up, COMEX gold futures rose 0.04% to $1,706.5 an ounce, and COMEX silver futures rose 2.39% to $18.66 an ounce. For the week, COMEX gold futures fell 2.05% and COMEX silver futures fell 2.99%. The dollar index closed down 0.61% at 108.

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