Early Morning Call: global equity markets, including S&P 500 and Nasdaq, fall after NFPs

Equity markets fall after NFPs

Global equity markets fell after the publication of US jobs data for September.

On Friday the S&P 500 dropped 2.8%, while the Nasdaq shed 3.8%. US stock and bond markets will remain closed today for Colombus Day.

Overnight the APAC region followed suit, and European equity markets opene lower this morning.

Friday's non-farm payrolls (NFPs) showed the creation of 263,000 jobs last month. The unemployment rate fell to 3.5%, from 3.7% in August, and average hourly earnings rose 0.3% on last month, and 5% on September 2021.

The number of people employed in the US is now higher than it was before the start of the Covid-19 pandemic. And according to the latest report of the bureau of statistics, job openings fell to 10.1 million, their lowest level since May 2021, while only six million people are looking for a job.

Interest rates

All this reflects a tight market that gives enough room to the US Federal Reserve (Fed) to continue to raise interest rates to bring inflation down.

This Thursday, consumer price index (CPI) is expected to rise by 8.1% in September year-on-year (YoY), after 8.3% in August. Core CPI increase is expected to accelerate to 6.5%, after 6.3% in August, matching the peak recorded in March 2022, a then 40-year high.

Should inflation data rise more than expected, like it did last month, it could give the dollar a leg up and send equity markets lower.

Earnings overview

This coming Friday, four of the US largest banks, JPMorgan , Citigroup , Wells Fargo and Morgan Stanley will report their quarterly earnings.

While banks may have been able to charge more for customers to borrow because of interest rates hikes, demand for loans, such as mortgages, has dropped due to the jump of the same borrowing costs, in a context of growing risks of an economic downturn triggered by high inflation, the war in Ukraine, and other supply chain issues.

As a result analyst expect banks to post lower earnings, and an increase in money set aside to cover bad loans.

JP Morgan Chase revenues are expected to increase by 5.4% YoY to just over $32 billion, but analysts see a 22% drop in earnings to $2.91 per share. Three weeks ago, JPMorgan's CFO warned the markets that investment banking revenue would be down by 45 to 50% in the third quarter (Q3).

Last year, strong demand for IPOs and other deals pushed investment banking revenue up to $3.3bn.

As for the other three, the biggest US mortgage lender Wells Fargo is expected to post earnings of $1.10 per share, that's a 17% decline according to Refinitiv. Revenue is expected to fall by about 1% to $18.75bn.

Citigroup is seen posting a 32% decline in earnings, down to $1.49 per share, on revenue of $18.38bn.

And for Morgan Stanley, analysts anticipate earnings of $1.52 per share, and revenue to reach $13.2bn.

Outside the banking sector, earnings reports expected this week include PepsiCo, Delta Air Lines and UnitedHealth.

Commodities

On the commodity market, oil prices are cooling off after recording their strongest week since February.

Last Friday, Baker Hughes total rig count fell by three to 762. The number of oil rigs in operation decreased by two to 602, while operational gas rigs fell by one to 160.