Daily Brief: US Jobs Fall Off A Cliff, As The Key German Stock Index Gets A Makeover

Daily Brief: US Jobs Fall Off A Cliff, As The Key German Stock Index Gets A Makeover

over 2 years ago3 mins

Data out on Friday showed the US added just 235,000 new jobs last month – far fewer than even economists’ lowest forecast of 400,000. So, uh, is it time to panic?

What does this mean?

Before you start running around the room in a frenzy, there are two mitigating factors to bear in mind here. First, the survey was taken in mid-August, when Delta variant fears were arguably at their highest. Bosses might’ve put hiring on pause to manage a slowdown in demand, and potential employees might’ve been holding off on accepting jobs to keep themselves safe. Second, wage growth came in ahead of expectations, though that was admittedly because high-paying jobs – rather than those in the retail and hospitality and leisure sectors, where hiring stayed flat or declined – were being filled. Between those two factors, most economists actually reckon August’s jobs report was just a coronavirus-driven blip.

US jobs report
Source: MarketWatch

Why should I care?

For markets: Keep the support comin’.

The US Federal Reserve (the Fed) has previously said that August’s jobs data would influence its gameplan for reducing its economic support, namely its bond-buying. But given how far short the number’s come in, the central bank isn’t expected to announce any major changes this month. Instead, it’ll probably wait until November at the earliest to see if August was a one-off. And since a reduction in the amount of bonds the Fed buys could drive stock prices lower (all else equal), the stay of execution should benefit stock prices in the short term.

The bigger picture: Central banks are in sync.

Economists are on average expecting the European Central Bank to start rolling back its economic support later this year too, with Europe having got a stronger handle on the pandemic than the US. That could put it on a similar timeline to the Fed, and show that major central banks are as synchronized in their pandemic recoveries as they were in their collapses.

ECB bond buying

Keep reading for our next story...

Germany Refreshed Its Key Stock Market Index

DAX image

Germany’s key stock market index unveiled a whole new look late on Friday, and – wow! – who’d have thought it looked like that without a scrunchie?

What does this mean?

Last year, German fintech giant Wirecard collapsed after admitting that $2 billion it claimed to have in cash didn’t exist. But given its existing rules, the DAX – Germany’s stock market equivalent of the US’s Dow Jones Industrial Average – couldn’t easily remove the company from its number.

So the index decided to overhaul those rules: it’s now demanding its members publish quarterly statements and audited annual results, and will kick out any that don’t release them on time. It made another significant tweak too: the DAX will expand from 30 companies to 40, which will see online fashion retailer Zalando, food subscription service HelloFresh, and aircraft manufacturer Airbus join the team. All in all, that’ll add around $415 billion to an index already worth $2.2 trillion.

DAX changes
Source: Bloomberg

Why should I care?

For markets: Fewer dividends, more growth.

The DAX is renowned for its dividend-payers, with companies like cloud computing provider SAP and luxury carmaker Daimler regularly making substantial payouts. But new additions like Zalando and HelloFresh are more interested in spending their cash on rapidly growing their businesses than they are on paying shareholders. That could change the dynamic of the index, and should lure in more growth-focused – rather than income-focused – investors.

DAX lagged

The bigger picture: Rebalancing giveth and taketh away.

Exchange-traded funds (ETFs) tracking the DAX with an estimated $19 billion of capital will invest some of that cash into the new stocks joining the index, which could give their share prices a boost. Not so for some of the biggest remaining DAX members: ETFs will reallocate some of their cash to the newcomers, which could put pressure on the veterans’ shares.

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