US jobs gain signals return to normalcy, but variant fears linger

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SINGAPORE – After gyrating between fears over the increasing worldwide Covid-19 outbreaks and euphoria over signs of a sequential economic recovery, the market surged towards the end of last week, buoyed by a strong US jobs report.

All three major Wall Street indexes ended the week higher, bolstered by the higher-than-expected 850,000 non-farm payroll increase last month – significantly more than the 559,000 chalked up in May.

The big board’s Dow Jones index gained 1 per cent to 34,768.35 points, while the broader S&P 500 hit a new record as it rose 1.7 per cent for the week to 4,352.34 points. The tech-heavy Nasdaq posted a weekly gain of 1.9 per cent to close at a new high of 14,639.33 points.

In Singapore, the Straits Times Index (STI) went through a 60-point swing between last Tuesday’s low and Thursday’s high before ending with a modest 0.2 per cent gain at 3,128.95 points as banks and blue chips seemed to lose some steam.

Fears of a United States Federal Reserve taper seemed to ease somewhat as the 10-year yield remained muted at below 1.5 per cent.

At a June 16 meeting, the Federal Reserve had indicated that interest rate hikes would likely kick in by 2023, but assured the market that it would provide early guidance on any tapering.

Signs of a return to normalcy are beginning to appear on various fronts.

The Brent Crude price is at its highest levels since November 2018, while unemployment in most developed economies has started sliding. One sure of normalcy is rising demand for goods and services, and thus prices, though the latter can also be due to the low “base effect” and supply chain constraints as economies start whirring up again.

Global technology stocks remained in play, boosting the local supporting cast, including Venture Manufacturing, AEM and UMS.

These three stocks, along with Nanofilm and ISDN, were among the biggest beneficiaries of net institutional fund inflows during the past week.

The biggest weekly index component gainers were Yangzijiang, Frasers Logistics & Commercial Trust, DBS Bank and Venture. On the other hand, the biggest STI component losers were Genting Singapore, City Developments, Keppel DC Reit, Thai Beverage and ST Engineering.

A potential reopening of economies is also giving some lift to the stock of Singapore Airlines.

It could be a quiet start to the week as yesterday was the US’ Independence Day holiday.

The biggest concern for the market is a resurgence of Covid-19, said Mr Vasu Menon, executive for investment strategy at OCBC Wealth Management.

“While the latest US jobs data and the upcoming economic data may offer a silver lining to markets, concerns are creeping up about the highly contagious Delta variant which is leading to lockdowns even in countries that had a better handle on Covid-19,” he said.

“The variant is spreading rapidly in the US and accounts for over a fifth of new coronavirus cases. Israelis are masking up again and the country has delayed reopening its borders because of Delta infections. Europe has toughened its curbs on UK visitors, also because of the Delta variant. Elsewhere, residents of Greater Sydney have been ordered to stay home until July 9. In essence, Covid-19 remains a risk that investors cannot ignore.”

Indeed, global Covid-19 cases have surged from 84 million at the beginning of this year to 182 million as at last week.

The second-quarter corporate results on Wall Street are expected in the coming weeks, and the US’ Purchasing Managers’ Index (PMI) is expected this week.

In China, the June Caixin PMI will come in today, while money supply and loan numbers will be released starting Friday.

These numbers will give an indication of how the world’s two biggest economies are faring, and will have a huge bearing on the rest of the world.

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