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Unexpected Drop In Employment May Weigh On Wall Street

The major U.S. index futures are pointing to a lower opening on Friday following the upward trend seen over the past several sessions.

The downward momentum on Wall Street comes following the release of a report from the Labor Department showing an unexpected drop in employment in the month of September.

After initially seeing modest strength, stocks saw further upside over the course of the trading session on Thursday. With the gains, the major averages extended a recent upward trend, once again reaching new record closing highs.

The major averages finished the session firmly in positive territory. The Dow rose 113.75 points or 0.5 percent to 22,775.39, the Nasdaq advanced 50.73 points or 0.8 percent to 6,585.36 and the S&P 500 climbed 14.33 points or 0.6 percent to 2,552.07.

The continued strength on Wall Street reflected recent upward momentum, with the S&P 500 closing higher for the eighth consecutive session.

Stocks have recently benefited from a batch of largely upbeat U.S. economic data as well as optimism about the outlook for tax reform.

Positive sentiment was generated by news the House approved a $4.1 trillion budget resolution, taking a key step in efforts to pass their tax reform plan.

The budget resolution includes major spending cuts but is largely seen as a vehicle for Republicans to enact their proposed tax cuts.

The bill unlocks the reconciliation process, allowing Republicans to pass tax reform with a simple 51-vote majority in the Senate.

Trading activity was somewhat subdued, however, with the closely watched monthly jobs report due on Friday keeping some traders on the sidelines.

Employment is expected to rise by 90,000 jobs in September after climbing by 156,000 jobs in August. The unemployment rate is expected to hold at 4.4 percent.

The Labor Department released a report this morning showing first-time claims for unemployment benefits fell by more than expected in the week ended September 30th.

The report said initial jobless claims dropped to 260,000, a decrease of 12,000 from the previous week's unrevised level of 272,000. Economists had expected jobless claims to edge down to 265,000.

A separate report from the Commerce Department showed that the trade deficit narrowed by more than anticipated in the month of August.

The report said the trade deficit narrowed to $42.4 billion in August from a revised $43.6 billion in July. The trade deficit had been expected to narrow to $42.7 billion.

The Commerce Department also released a report showing factory orders jumped by 1.2 percent in August compared to estimates for an increase of 1.0 percent.

Reflecting optimism about the economic outlook, financial stocks showed a significant move to the upside on the day. The Dow Jones Banks Index climbed by 1.3 percent, while the NYSE Arca Broker/Dealer Index rose by 1 percent.

Strong gains by financial giants Goldman Sachs (GS) and JP Morgan (JPM) contributed to the continued advance by the Dow.

Considerable strength also emerged among software stocks, as reflected by the 1.2 percent gain posted by the Dow Jones Software Index. The index reached its best closing level in almost a month.

Software giant Microsoft (MSFT) helped lead the sector higher after Canaccord Genuity upgraded its rating on the company's stock to Buy from Hold.

Internet, retail, and oil service stocks also saw some strength on the day, while gold and tobacco stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are tumbling $1.07 to $49.72 a barrel after climbing $0.81 to $50.79 a barrel on Thursday. Meanwhile, after sliding $3.60 to $1.273.20 an ounce in the previous session, gold futures are falling $4 to $1,269.20 an ounce.

On the currency front, the U.S. dollar is trading at 113.39 yen compared to the 112.82 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1681 compared to yesterday's $1.1711.

Asia

Asian stocks closed mostly higher on Friday, tracking overnight gains on Wall Street after Congress passed a $4.1 trillion budget resolution and data on jobless claims, factory orders and trade pointed to underlying strength in the economy. However, overall gains remained muted ahead of the U.S. September jobs report.

Japanese shares hit a two-year high, with a weakening yen on hopes for U.S. tax reform as well as record highs on Wall Street giving local markets a lift.

The Nikkei 225 Index finished 62.15 points or 0.3 percent higher at 20,690.71, while the broader Topix Index closed 0.3 percent higher at 1,687.16.

Among the top gainers, Kobe Steel, Mitsubishi Motors, Dai-ichi Life Insurance, Mitsubishi UFJ Financial, Fast Retailing and Sumitomo Metal Mining jumped 2-4 percent.

MS&AD Insurance advanced 1.6 percent after it agreed to invest 800 million pounds, or $1.5 billion, to acquire a stake of up to 15 percent in Swiss Re's U.K.-based unit ReAssure Jersey One Ltd.

Australian shares rallied, led by financial and material stocks after the major U.S. indexes rose solidly overnight to reach fresh record closing highs.

The benchmark S&P/ASX 200 Index jumped 58.90 points or 1 percent to 5,710.70, while the broader All Ordinaries Index surged up 57.10 points or 1 percent to 5,777.40.

Mining heavyweights BHP Billiton and Rio Tinto rallied around 2 percent each and healthcare firm CSL rose 1.2 percent as the Aussie dollar continued to fall following Thursday's dismal retail sales data.

Woodside Petroleum, Oil Search and Santos gained between 1.6 percent and 2.3 percent after crude oil prices rebounded to above $50 a barrel overnight. The big four banks all ended up more than 1 percent.

Investors shrugged off a survey from the Australian Industry Group showing that Australia's construction sector expanded at a slower pace in September.

Hong Kong's Hang Seng Index rose 78.86 points or 0.3 percent to 28,458.04 as trading resumed after Thursday's holiday. The index closed at its highest level in nearly a decade. Chinese and South Korean markets were closed for trading.

Europe

European stocks are turning in a mixed performance on the day as investors fret over political risks in Spain and the U.K.

Spanish banks have come under selling pressure again after the Catalan government said it would press ahead with its planned parliament meeting on Monday to discuss Sunday's referendum result and announce a unilateral declaration of independence in defiance of a court ban.

In the U.K., pressure is mounting on Prime Minister Theresa May after former Tory party chairman Grant Shapps admitted he is running a campaign to oust her.

While the French CAC 40 Index is down by 0.2 percent, the U.K.'s FTSE 100 Index is up by 0.2 percent and the German DAX Index is up by 0.1 percent.

Building materials group CRH has moved to the downside after acknowledging a rival third party bid for the takeover of Ash Grove Cement Co.

Meanwhile, Novartis has risen modestly after its eye care unit Alcon achieved European CE Mark for the Clareon IOL with the AutonoMe delivery system.

French automaker Renault has rallied 1 after announcing a six-year plan to deliver annual revenues of over 70 billion euros.

In economic news, German factory orders rebounded at a faster than expected pace in August, data from Destatis showed. Factory orders grew 3.6 percent in August, reversing a revised 0.4 percent drop in July.

The French trade deficit narrowed to an eight-month low in August due to an acceleration in exports and a decline in imports, the customs office said. The current account deficit, meanwhile, narrowed to 1.5 billion euros in August from 4.3 billion euros in July.

Permanent job placements in the U.K grew at the weakest pace in five months in September, the Report on Jobs compiled by the Recruitment and Employment Confederation and IHS Markit showed.

U.K. house prices increased 4 percent year-on-year in the three months to September, faster than the 2.6 percent rise seen in three months to August, data from mortgage lender Halifax and HIS Markit showed.

U.S. Economic Reports

Reflecting the impact of Hurricanes Harvey and Irma, the Labor Department released a report showing an unexpected decrease in employment in the U.S. in the month of September.

The Labor Department said non-farm payroll employment fell by 33,000 jobs in September after climbing by an upwardly revised 169,000 jobs in August.

The modest decrease surprised economists, who had expected employment to rise by 90,000 jobs compared to the addition of 156,000 jobs originally reported for the previous month.

Despite the unexpected drop in employment, the unemployment rate dipped to 4.2 percent in September from 4.4 percent in August. Economists had expected the unemployment rate to hold at 4.4 percent.

With the unexpected decrease, the unemployment rate fell to its lowest level since hitting a matching rate in February of 2001.

The report also showed a notable acceleration in the pace of wage growth, as average hourly employee earnings were up by 2.9 percent year-over-year in September compared to 2.5 percent in August.

At 9:15 am ET, Atlanta Federal Reserve President Raphael Bostic is due to speak at the Investing in America's Workforce Capstone Conference in Austin, Texas.

The Commerce Department is scheduled to release its report on wholesale trade in the month of August at 10 am ET. Wholesale inventories are expected to climb by 1 percent.

At 12:15 pm, New York Fed President William Dudley is due to speak about the monetary policy outlook and the importance of higher education for economic mobility at a Council for Economic Education event in New York.

Dallas Fed President Robert Kaplan is scheduled to speak at the Investing in America's Workforce Capstone Conference at 12:45 pm ET.

At 1:50 pm ET, St. Louis Fed President James Bullard is due to speak on the "Standard of Living Across U.S. Metropolitan Statistical Areas" at the Bi-State Development 2017 Annual Luncheon Meeting in St. Louis.

The Fed is scheduled to release its report on consumer credit in the month of August at 3 pm ET. Consumer credit is expected to increase by $16.0 billion.

Stocks In Focus

Shares of Synchronoss Technologies (SNCR) are moving sharply higher in pre-market trading after the mobile cloud solutions company said it has resumed buyout talks with Siris Capital Partners.

Endologix (ELGX) may also see early strength after receiving Investigational Device Exemption approval from the FDA to commence a confirmatory clinical study to evaluate the Nellix EndoVascular Aneurysm Sealing System for the treatment of infrarenal abdominal aortic aneurysms.

On the other hand, shares of Costco (COST) are moving to the downside in pre-market trading after the warehouse retailer reported better than expected fiscal fourth quarter results but shrinking margins raised concerns about an intensifying grocer price war.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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