Daily market review
US hiring slows while demand for technology holds up
US shares recovered some lost ground on Wednesday, but pressure from interest rates has not disappeared. Slower hiring strengthens the case for taking time before tightening monetary policy, while chipmaker Broadcom’s results, released after the close, confirm strong demand for technology. For investors, the key is to distinguish rising profits from the assumption that borrowing will soon become cheaper.
The week’s central question
Can strong profits and improving manufacturing offset inflation that stands in the way of interest rate cuts?
What has changed since yesterday? Resilient manufacturing has been joined by two contrasting signals: US private-sector employment is growing more slowly, while Broadcom’s sales are rising rapidly. This eases some concerns about equities, but signals from the European Central Bank and Japan’s bond auction offer no grounds for assuming that the period of high interest rates is over.
Challenging the case. Signals from European Central Bank policymakers suggest that more expensive energy could require higher interest rates.
The next test. The official US employment report on September 4 will show whether broader data confirm the slowdown in private-sector hiring.
1 The US economy and interest rates
US companies are hiring more slowly, but that is not a promise of interest rate cuts
Facts
Payroll processor ADP reported on September 2 that US private-sector employment increased by 38 thousand in August. This was the smallest gain since January; the revised July figure was 46 thousand. A Federal Reserve survey of business contacts released on the same day showed growth in 10 of its 12 districts. Information was collected through August 24, so it does not yet capture the latest geopolitical escalation.
Why it matters
Slower hiring weakens the case for further interest rate increases because demand for workers no longer appears to be strengthening steadily. Yet continuing price pressures in the survey tell the other side of the story: slower job creation alone is not enough to resolve the inflation problem.
Portfolio impact
If official data confirm a gentle slowdown, that could support long-term US bonds and growth stocks. A sharper deterioration in the labour market, however, would threaten consumer-facing companies’ revenue. Changes in the dollar would add another source of gains or losses for euro-based investors.
Opportunity and risk
The opportunity is continued economic growth without further interest rate increases. The risk is that weaker hiring signals falling demand rather than a comfortable balance. The official employment report on September 4 will be a more important test; private-sector payroll data cannot replace it.
2 Energy and geopolitics
US oil inventories are falling even though demand shows no sign of a boom
Facts
The US Energy Information Administration’s September 2 report showed commercial crude oil inventories falling by 4.5 million barrels to 424.5 million in the week ended August 28. That represents roughly 1.0 % of the previous stock level. Petroleum products supplied to the domestic market over four weeks, a measure used to gauge demand, were 4 % lower than a year earlier. These figures do not yet cover the new strikes on Iranian targets announced by the US military on September 1.
Why it matters
Lower inventories make it harder to absorb an unexpected supply disruption, but declining consumption limits demand-driven price increases. Oil’s direction therefore depends on more than the amount in storage: the safety of shipping through the Strait of Hormuz also matters.
Portfolio impact
More expensive oil can lift energy producers’ revenue, but it raises costs for transport and chemical companies. If higher fuel prices persist, the resulting inflation pressure would also be unfavourable for long-term bonds. These are different ways the same event can affect a portfolio.
Opportunity and risk
The opportunity would come from shipping returning to normal: cheaper fuel would ease costs for businesses and consumers. The risk is another supply disruption. A meeting of seven oil-exporting countries and their partners on September 6 will provide a fresh signal on production policy.
3 Technology and corporate earnings
Broadcom’s revenue surged, but high expectations require sustained growth
Facts
Chip and infrastructure software supplier Broadcom reported quarterly revenue of USD 29.6 billion after US trading closed on September 2, up 86 % from a year earlier. Semiconductors for artificial intelligence generated USD 16.7 billion, with revenue growing 221 %. Free cash flow, the cash remaining after investment in long-term assets, amounted to about 46 % of revenue. The company forecasts sales of USD 34.8 billion for the next quarter.
Why it matters
Data-centre spending is already turning into sales and cash flow for the supplier, so the technology story rests on more than promises. However, a supplier’s success does not prove that every business buying this infrastructure will earn a return on its investment just as quickly.
Portfolio impact
This supports the demand outlook for semiconductor funds, networking equipment providers and electricity infrastructure suppliers. At the same time, technology indices are becoming more dependent on spending by large customers. Simply holding several funds that own similar chipmakers does not necessarily diversify the risk.
Opportunity and risk
The opportunity is continued infrastructure expansion; the risk is missed forecasts or customers postponing investment. The next test will be US trading on September 3. Results released after the close cannot explain the direction of Wednesday’s stock market session, which had already ended.
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4 Europe and financing
European Central Bank signals suggest it is too early to expect cheaper loans
Facts
In an interview published on September 2, Germany’s central bank president Joachim Nagel endorsed the market’s readiness for a September interest rate increase but made no commitment about subsequent steps. New European Central Bank statistics for July showed the composite cost of new business borrowing at 3.80 % and the equivalent home-loan measure at 3.54 %. The latter rose by 0.03 percentage points over the month. These are euro-area averages, not specific offers from Lithuanian banks.
Why it matters
If the energy-price shock lasts, it can spread to wages and other prices. That leaves the central bank with less room to ease borrowing conditions. For companies that will soon need to refinance debt, the cost of their next loan matters as much as what they are paying today.
Portfolio impact
Higher interest rates would put pressure on long-term euro bond prices and heavily indebted property companies. Savers may see better terms on new fixed-term deposits or bonds, but that does not offset every decline in the value of investments they already hold.
Opportunity and risk
The opportunity is higher interest income when reinvesting money. The risk is that more expensive loans restrain consumption and investment. The European Central Bank’s decision and forecasts on September 10 will show how far policymakers’ current signals translate into policy.
5 Japan and global bonds
Japan signals a more flexible approach to rate increases as long-term borrowing becomes dearer
Facts
The average yield at today’s auction of Japan’s 30-year government bonds reached 4.079 %, compared with 3.937 % on August 6. This compares the same bond issue and represents an increase of 0.142 percentage points. Yesterday, Bank of Japan board member Hajime Takata called for flexibility over the size and frequency of interest rate increases. This is one member’s view, not an adopted central bank decision.
Why it matters
A higher yield on the same bond means a lower price. More attractive domestic bonds may influence Japanese savers’ choice between local and overseas markets. However, a single auction does not establish that money is already returning to Japan on a large scale.
Portfolio impact
Holdings of Japan’s long-term debt within global bond funds may experience price fluctuations. Banks and insurers benefit from better reinvestment terms, but the value of their older bonds may fall. For euro-based investors without currency hedging, changes in the yen add another source of returns and risk.
Opportunity and risk
The opportunity is higher interest income on newly invested money; the risk is further declines in long-term bond prices. The Bank of Japan’s September 17–18 meeting will show how far the more hawkish signals from individual members translate into a collective decision. One auction cannot be treated as evidence that investors as a whole are pulling out.
Today’s portfolio compass
Profit growth supports shares, but it does not remove the cost of debt
Slower US hiring and strong Broadcom sales offer two different counterweights to market concerns: the former weakens the case for additional interest rate increases, while the latter supports the outlook for technology profits. Even so, oil supply risks could prolong inflation, and signals from Europe and Japan are a reminder that borrowing is not yet becoming cheaper everywhere. Resilience in technology shares should therefore not be confused with safety across an entire portfolio. It matters how much technology exposure is shared across your funds, how much long-term debt they hold, and how unhedged dollar or yen movements affect returns measured in euros.
Important. This is general information, not a personal recommendation to buy or sell. Investments can rise or fall in value; forecasts are not guarantees, and decisions should reflect your own goals, time horizon and tolerance for risk.
