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Stocks Fall After U.S. Economy Adds Back 372,000 Jobs In June – Forbes

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Topline

The stock market moved higher on Friday and posted solid gains this week, as investors assessed a stronger-than-expected jobs report amid ongoing fears that the Federal Reserve’s aggressive rate hikes could plunge the economy into a recession.

Key Facts

Markets were mostly higher in choppy trading: The Dow Jones Industrial Average fell 0.2%, less than 100 points, while the S&P 500 lost 0.1% and the tech-heavy Nasdaq Composite rose 0.1%.

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The U.S. economy added back 372,000 jobs in June—surpassing the roughly 250,000 new jobs economists had projected but falling short of the revised estimate of 384,000 jobs added in May, according to new Labor Department data on Friday.

Stocks initially opened lower as rates surged, with investors anticipating that the strong jobs report will strengthen the Federal Reserve’s resolve in continuing to aggressively raise interest rates in a bid to combat inflation.

With recession fears still weighing on investor sentiment, markets are now pricing in a roughly 95% probability that the Fed will deliver a 75-basis-point rate hike later this month, according to CME Group data.

Shares of Twitter, meanwhile, declined 4% after The Washington Post reported Tesla billionaire Elon Musk’s deal to buy the social media company is “in peril” and that some discussions have been halted.

Shares of video game retailer GameStop fell nearly 5% in early trading—a day after jumping roughly 15% on the back of a 4-for-1 stock split—amid news of layoffs and the company’s chief financial officer departing.

Crucial Quote:

“Given the ‘bad is good’ mindset in the market and anticipation for a slowdown in both growth and inflation, this jobs report is negative for near-term equity sentiment,” says Vital Knowledge founder Adam Crisafulli. The Fed will likely see the solid jobs numbers and “feel confident that its [monetary policy] tightening isn’t breaking the economy,” with another 75 basis point looking likely at the central bank’s upcoming policy meeting later this month, he adds.

Key Background:

Stocks are aiming for a rare winning week after posting solid gains in previous days, with the S&P up about 2%. The benchmark index recorded its fourth consecutive session of gains on Thursday, its longest positive streak since late March, but remains down roughly 19% so far in 2022 amid the wider market selloff.

What To Watch For:

“The market has moved into the Good News is Bad News phase as it had hoped that a weaker headline payroll report would signal that the Fed-induced economic slowdown would reduce payrolls and allow the Fed to check off another box,” says Quincy Krosby, chief equity strategist for LPL Financial. “Not yet.”

Further Reading:

Labor Market Added 372,000 Jobs In June As Layoffs And Recession Fears Grow (Forbes)

Dow Jumps Over 300 Points As Stocks Aim For Rare Winning Week (Forbes)

Federal Reserve Prepares More Big Rate Hikes Amid Risk That High Inflation Could ‘Become Entrenched’ (Forbes)

Stocks Claw Back Losses Despite Yield Curve Inversion And Global Recession Fears ‘Front And Center’ (Forbes)

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Economy

China Wants Everyone to Trade In Their Old Cars, Fridges to Help Save Its Economy

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China’s world-beating electric vehicle industry, at the heart of growing trade tensions with the US and Europe, is set to receive a big boost from the government’s latest effort to accelerate growth.

That’s one takeaway from what Beijing has revealed about its plan for incentives that will encourage Chinese businesses and households to adopt cleaner technologies. It’s widely expected to be one of this year’s main stimulus programs, though question-marks remain — including how much the government will spend.

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German Business Outlook Hits One-Year High as Economy Heals

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German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.

An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.

“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”

A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.

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There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.

Even so, the start of the year “didn’t go great,” according to Fuest.

“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”

Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.

“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”

Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.

–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.

(Updates with more comments from Fuest starting in sixth paragraph.)

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Parallel economy: How Russia is defying the West’s boycott

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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.

Officially, Apple does not sell its products in Russia.

The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.

But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.

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Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.

Zoya bought the watch without a moment’s delay.

The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.

“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.

“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”

Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.

But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.

Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.

The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.

 

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