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Interest Rate Worries May Weigh On Wall Street After Strong Jobs Data

The major U.S. index futures are currently pointing to a lower open on Friday, with stocks likely to move to the downside following the mixed performance seen in the previous session.

The futures showed a notable move to the downside following the release of the Labor Department's closely watched monthly jobs report.

The report showed employment in the U.S. jumped by much more than expected in the month of July, leading to concerns about the outlook for interest rates.

The report showed non-farm payroll employment spiked by 528,000 jobs in July after surging by an upwardly revised 398,000 jobs in June.

Economists had expected employment to climb by about 250,000 jobs compared to the addition of 372,000 jobs originally reported for the previous month.

With the stronger than expected job growth, the unemployment rate unexpectedly edged down to 3.5 percent July from 3.6 percent in June. The unemployment rate was expected to remain unchanged.

While the data paints a positive picture of the labor market, the report may also give the Federal Reserve confidence they can continue aggressively raising interest rates without causing a recession.

The stronger than expected jobs report is likely to increase expectations that the Fed will raise rates by another 75 basis points at the next meeting in September.

Stocks turned in a relatively lackluster performance during trading on Thursday, with the major averages bouncing back and forth across the unchanged line following the rally seen on Wednesday. Despite the choppy trading, the tech-heavy Nasdaq reached a new three-month closing high.

The major averages eventually finished the session mixed. While the Nasdaq rose 52.42 points or 0.4 percent to 12,720.58, the S&P 500 edged down 3.23 points or 0.1 percent to 4,151.94 and the Dow dipped 85.68 points or 0.3 percent to 32,726.82.

The choppy trading on Wall Street came as traders seemed reluctant to make significant moves ahead of the release of the Labor Department's closely watched monthly jobs report.

The strength of the jobs report could impact the outlook for interest rates, although the Federal Reserve will have much more data to digest before their next meeting in September.

"Equities might struggle to keep the rally going as investors continue to see economic data that suggests the economy is still holding up and as US-China tensions simmer," said Edward Moya, senior market analysis and OANDA.

"Wall Street has heard enough from the Fed to know that we are stuck in wait-and-see mode for the next 48 days," he added. "The September 21st FOMC decision will have a clear trajectory from both labor market and inflation data points."

A day ahead of the release of the more closely watched monthly jobs report, the Labor Department released a report showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended July 30th.

The report showed initial jobless claims crept up to 260,000, an increase of 6,000 from the previous week's revised level of 254,000.

Economists had expected jobless claims to inch up to 259,000 from the 256,000 originally reported for the previous week.

The Commerce Department released a separate report showing the U.S. trade deficit narrowed by more than expected in the month of June.

The report showed the trade deficit narrowed to $79.6 billion in June from a revised $84.9 billion in May. Economists had expected the trade deficit to shrink to $81.9 billion from the $85.5 billion originally reported for the previous month.

The decrease in the size of the trade deficit came as the value of exports surged by 1.7 percent to $260.8 billion, while the value of imports edged down by 0.3 percent to $340.4 billion.

Despite the lackluster performance by the broader markets, gold stocks moved sharply higher on the day, rebounding along with the price of the precious metal. The NYSE Arca Gold Bugs Index spiked by 3.1 percent.

Biotechnology stocks also saw substantial strength, extending the rally seen on Wednesday. The NYSE Arca Biotechnology Index jumped by 2.7 percent to its best closing level in well over three months.

Airline, brokerage and housing stocks also moved notably higher on the day, while energy stocks saw further downside amid a continued slump by the price of crude oil.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 4.7 percent, the NYSE Arca Oil Index plunged by 3.3 percent and the NYSE Arca Natural Gas Index dove by 2.9 percent.

Commodity, Currency Markets

Crude oil futures are rising $0.51 to $89.05 a barrel after tumbling $2.12 to $88.54 a barrel on Thursday. Meanwhile, after surging $30.50 to $1,806.90 an ounce in the previous session, gold futures are falling $16.20 to $1,790.70 an ounce.

On the currency front, the U.S. dollar is trading at 134.35 yen versus the 132.89 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0177 compared to yesterday's $1.0246.

Asia

Asian stocks rose on Friday as investors awaited an update on the U.S. jobs market later in the day for clues on the pace of monetary policy tightening going ahead.

Chinese shares rallied as tech companies jumped on expectations that the China-Taiwan standoff might increase global chip shortages. The benchmark Shanghai Composite Index jumped 1.2 percent to 3,227.03.

Hong Kong's Hang Seng Index finished 0.1 percent higher at 20,201.94. Alibaba Group Holdings shares fell 2.2 percent as the e-commerce giant reported flat quarterly revenue growth for the first time since becoming a public company.

Japanese shares rose notably as investors cheered better-than-expected earnings from the likes of Kikkoman Corp. and Nippon Steel. Uniqlo operator Fast Retailing added 1.3 percent after saying it is planning an aggressive growth strategy across North America.

The Nikkei 225 Index climbed 0.9 percent to 28,175.87 - extending gains for a third day and closing above the 28,000 psychological level for the first time in nearly two months. The broader Topix settled 0.9 percent higher at 1,947.17.

Seoul stocks extended gains for a third day running on continued foreign buying. The Kospi gained 0.7 percent to close at 2,490.80 on expectations that inflation might soon peak.

Samsung Biologics rose 2.3 percent and Celltrion jumped 4.2 percent after the U.S. government declared the monkeypox outbreak a public health emergency.

Australian markets hit a two-month high as strong gains in the mining sector outweighed weakness among energy stocks. Afterpay owner Block slumped 6.2 percent after it reported a slowdown in revenue related to its bitcoin business.

The benchmark S&P ASX 200 Index rose 0.6 percent to 7,015.60, while the broader All Ordinaries Index ended 0.6 percent higher at 7,250.30.

Europe

European stocks have moved to the downside on Friday, as U.S.-China tensions simmer and the U.S. jobs report raises concerns about the outlook for interest rates..

Days after U.S. House of Representative Speaker Nancy Pelosi visited Taiwan, the Chinese government has decided to impose sanctions on her and her family. China said it fired missiles over Taiwan for the first time, escalating tensions in the region.

Investors were also reacting to the Bank of England's largest interest-rate hike in last 27 years and its warning that a long recession is on its way.

Data showed German industrial output rose sequentially in June despite supply-china problems and higher energy prices.

Output in Europe's manufacturing powerhouse rose 0.4 percent in June from the previous month in calendar-adjusted terms, Destatis said.

While the French CAC 40 Index has slid by 0.8 percent, the U.K.'s FTSE 100 Index and the German DAX Index are down by 0.3 percent and 0.2 percent, respectively.

Pirelli & C. SpA has surged after the Italian tire manufacturer reported higher profit in its second quarter, driven by strong revenue growth. The company also lifted its fiscal 2022 forecast for revenues.

German logistics company Deutsche Post has also moved sharply higher after its second-quarter earnings beat expectations.

On the other hand, Insurer Allianz has shown a notable move to the downside after reporting a 23 percent decrease in second-quarter net profit.

Credit Suisse has also declined following reports that executives at the Swiss bank are discussing reducing thousands of roles globally.

Automotive and arms manufacturer Rheinmetall has also plunged despite the company posting higher profit and sales for the first half of the year.

Capita has also tumbled. The business process outsourcing and professional services provider said that its first-half profit before tax plunged to 0.1 million pounds from last year's 261.1 million pounds, reflecting business exits and portfolio goodwill impairment.

U.S. Economic Reports

Employment in the U.S. jumped by much more than expected in the month of July, according to a closely watched report released by the Labor Department on Friday.

The report showed non-farm payroll employment spiked by 528,000 jobs in July after surging by an upwardly revised 398,000 jobs in June.

Economists had expected employment to climb by about 250,000 jobs compared to the addition of 372,000 jobs originally reported for the previous month.

The Labor Department said job growth was widespread, led by gains in the leisure and hospitality, professional and business services, and healthcare sectors.

The report also showed the unemployment rate unexpectedly edged down to 3.5 percent July from 3.6 percent in June. The unemployment rate was expected to remain unchanged.

With the unexpected decrease, the unemployment rate fell to its lowest level since hitting matching rate in February of 2020, just before Covid-19 lockdowns began to take effect in the U.S.

At 3 pm ET, the Federal Reserve is scheduled to release its report on consumer credit in the month of June. Consumer credit is expected to increase by $24.0 billion.

Stocks In Focus

Shares of Virgin Galactic (SPCE) are moving sharply lower in pre-market trading after the space tourism company once again delayed the launch of its commercial service.

Media giant Warner Bros. Discovery (WBD) is also seeing significant pre-market weakness after reporting second quarter results that missed analyst estimates.

Meanwhile, shares of DoorDash (DASH) are likely to see initial strength after the food delivery service reported a wider than expected second quarter loss but raise its forecast for gross order value.

Sports betting company DraftKings (DKNG) may also move to the upside after reporting better than expected second quarter results and booting is full-year revenue guidance.

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