Morning Wrap: US stocks and bonds rally after jobs report, ASX set to bounce

In 2022, a larger-than-expected increase in job creation was a cause for markets to sink. Not this time. US stocks had their best day in more than a month as traders chose to focus on a slowdown in wage growth rather than an increase in jobs. Investors also bought into US Treasuries while while the Dollar dropped. But the big question remains - if wages grow at a slower rate than expected, will it be enough to see the Federal Reserve blink?

Let's go.

MARKETS

Friday’s surge singlehandedly saved the week for US equities. The S&P 500 finished Friday's session up 2.28%, taking the weekly gain to 1.86%. 

• All 11 sectors finished in the green, with materials leading the charge (+3.44%).

• Health stocks were the relative underperformer, up 0.9%

• The US 10-year yield dropped 16 basis points to 3.56%.

• 76% of stocks advanced

• 49% of stocks traded above the 200-day moving average

STOCKS

Shares in World Wrestling Entertainment (WWE) soared following news of its founder’s return to the Board of Directors. Vince McMahon will return as executive chairman and he may even lead a charge to sell the business, per reports in the Wall Street Journal.

CostCo (COST) shares also rose about 7% after it reported solid sales numbers for December. Costco posted net sales of $23.8 billion in December 2022, marking an increase of 7% year-over-year. 

Investors continued to sell Bed Bath & Beyond shares a day after the company revealed it was exploring the possibility of bankruptcy.

WORLD NEWS

• After three years, China reopens sea and land crossings with Hong Kong (Reuters, FT)

• Friday's curve-steepening move suggests Treasury investors see the end of Fed tightening, though coming data may challenge that view (Bloomberg)

• Wall Street Sets Low Bar for Corporate Earnings Season (WSJ)

• Shareholders agree to a deal for Jack Ma to give up control of Ant Group (Reuters)

ECONOMY

US employers added 223,000 jobs in December - which was the smallest monthly gain in two years. But it’s average hourly earnings that caught traders’ attention. While earnings were up 4.6% in December from the previous year, it was the narrowest increase since mid-2021, and down from a March peak of 5.6%.

But in data that will fuel the bears’ case of a recession, two sets of North American PMIs didn’t impress. In Canada, the Ivey PMI collapsed to 33.4 from the prior month’s reading of 51.4. Economists were expecting a print of 51.

And stateside, the non-manufacturing PMI fell into contractionary territory (49.6) despite recording a 56.5 reading last month. 

But Scotiabank’s team of economists argue that you shouldn’t be surprised by the falls in services activity even though it’s a holiday season.

…A caution around this is that while it's seasonally adjusted, I'm not especially surprised to see weaker than normal new orders that dragged down the headline reading after holiday sales were front loaded relatively early in the season compared to prior years…

Reported by Chris Conway of Livewire Markets.

The Aussie market closed 46 points (+0.46%) higher on Friday but that’s not the story as we head into today’s session. Rather, it’s the 700-point rally on the Dow on Friday night following data showing the wage pressures are cooling. That should light a rocket under the market today and push the index further away from the 7000 level. It’s early days and we know things can change significantly in a short space of time, but from a technical perspective the ASX 200 is starting to look constructive. 

So is the Dow Jones, according to a technical strategist at Janney Montgomery Scott, as per an article in MarketWatch. The chart below, taken from the article, shows the Dow’s 50-day moving average (MA) crossed above the 200-day MA, producing what is known as a “golden cross.”

Furthermore, the Dow’s chart is showing a “minor breakout” above the bear-market downtrend line that started in early 2022. Again, these signals could all amount to nothing, but they could also be the start of a fresh move higher.

Sectors to Watch

• It could be a case of a rising tide lifting all boats today. In the US on Friday night, both growth and value as factors were up more than 2%. 

• Semis, tech hardware, industrial metals, chemicals, rails, machinery, rental equipment, building materials, regional banks, credit cards, staples retailers and off-price retailers were among the standouts. 

• Laggards included select MedTech and managed care.

• On Friday in Australia, only four of 12 sectors closed higher, despite the rally in the broader market. Materials were up 3%, energy up 1.6%, whilst industrials and consumer discretionary eked out modest gains. 

Materials should do well again today, with gold up 1.6%, iron ore up 1.4%, copper up 2.3% and aluminium up 1%. 

ASX corporate actions occurring today:

• Dividends paid: Seitel Limited (SSLPA)

• Listing: None

Economic calendar: 

• AU – Building approvals 

• Japan – Bank holiday

• EU unemployment rate