U.S stocks closed out the trading week on a down note on Friday, as early gains from a jobs report that showed a labour market that may be starting to loosen gave way to worries about the European gas crisis.
The TSX, however, managed to end trading Friday in positive territory, ending a five-day long losing streak, thanks to rallying energy and materials stocks. A softer U.S. dollar helped buoy the price of the commodities that drive stock performance of those sectors.
Wall Street opened sharply higher after the August U.S. payrolls report showed stronger-than-expected hiring but a climb in the unemployment rate to 3.7% eased some concerns about the Federal Reserve being overly aggressive in raising interest rates as it attempts to bring down high inflation.
However, gains were erased after Gazprom, the state-controlled firm with a monopoly on Russian gas exports to Europe via pipeline which were due to restart on Saturday, said it could not safely restart deliveries until it had fixed an oil leak found in a vital turbine and did not give a new time frame.
“Definitely the afternoon overshadowing the good data from this morning, the afternoon has been stolen from us by those headlines out of Europe,” said Zach Hill head of portfolio management at Horizon Investments in Charlotte, North Carolina.
Analysts also pointed to thin trading volumes ahead of the extended holiday weekend helping to exaggerate market moves.
“The setup is important, there has been some optimism around the European energy situation over the last week or so, long-dated power prices falling almost in half in some instances and signs that Germany had almost 80% of their storage full of gas, so what we are seeing is a little positioning adjustment against that backdrop coupled with a low liquidity Friday afternoon into a holiday weekend,” said Hill.
While payrolls topped expectations, average hourly earnings rose 0.3% compared with estimates of 0.4%, while the unemployment rate edged up to 3.7% from a pre-pandemic low of 3.5%, indicating that the Fed’s efforts to front-load rate hikes were beginning to take effect.
Wage growth data is seen as important to the Fed’s deliberations on increasing interest rates as the central bank looks to bring inflation, running at four-decades high, back to its 2% target. Expectations for a third straight 75 basis point hike from the central bank at its September meeting fell to 56%, according to CME’s FedWatch Tool, down from 75% the day prior.
The focus now shifts to the August consumer price report due mid-month, the last major data available before the Fed’s Sept. 20-21 policy meeting.
Fears of aggressive policy tightening have sent stocks lower after hitting a four-month high in mid-August, with the S&P 500 falling about 7% since the day before Fed Chair Jerome Powell’s hawkish remarks last week about rate hikes. His views were later echoed by other policymakers.
The S&P/TSX Composite Index Friday closed up 128.13 points, or 0.67%, at 19,270.85. In the previous five trading sessions, the TSX lost 5.1%, or just over 1,000 points.
Financials gained 0.6% on Friday. CIBC shares closed higher following 10 consecutive days of ending in the red.
Energy and materials both advanced more than 2%.
Oil prices rose on expectations that OPEC+ will discuss output cuts at a meeting on Sept. 5, though concern over China’s COVID-19 curbs and weakness in the global economy loomed over the market.
Brent crude futures rose 66 cents to settle at $93.02 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 26 cents to settle at $86.87 a barrel. Both benchmarks slid 3% to two-week lows in the previous session. Brent posted a weekly drop of 7.9%, and WTI of 6.7%.
Weakness in the U.S. dollar Friday also helped oil to advance, and it aided gold as well. U.S. gold futures settled up 0.8% at US$1,722.6.
The Dow Jones Industrial Average fell 337.98 points, or 1.07%, to 31,318.44; the S&P 500 lost 42.59 points, or 1.07%, to 3,924.26; and the Nasdaq Composite dropped 154.26 points, or 1.31%, to 11,630.86.
Energy was the only major S&P sector to end the session in positive territory, up 1.81%.
All the three main indexes suffered their third straight weekly loss, as the Dow fell 2.99%, the S&P 500 declined 3.29% and the Nasdaq dropped 4.21%.
Volume on U.S. exchanges was 9.95 billion shares, compared with the 10.48 billion average for the full session over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 1.34-to-1 ratio; on Nasdaq, a 1.65-to-1 ratio favored decliners. The S&P 500 posted three new 52-week highs and 14 new lows; the Nasdaq Composite recorded 47 new highs and 184 new lows.
Treasury yields, which have been rising along with expectations for higher interest rates, fell broadly. The yield on the 10-year U.S. Treasury, a benchmark that heavily influences Canadian bond yields, slipped to 3.20% from 3.26% late Thursday. The two-year U.S. Treasury yield, which tends to track expectations for Fed action, fell to 3.41% from 3.52%.
U.S. and Canadian equity markets are closed Monday for the Labour Day holiday.
Reuters, Globe staff
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