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Beyond the Numbers

Looming Jobs Data May Lead To Choppy Trading On Wall Street
6/6/2019 9:00 AM

The major U.S. index futures are pointing to a roughly flat opening on Thursday, with stocks likely to show a lack of direction after moving sharply higher over the two previous sessions.

The markets could continue to benefit from continued optimism about a potential interest rate cut by the Federal Reserve, although lingering trade concerns are likely to keep any buying interest somewhat subdued.

Overall trading activity may also remain light as some traders may stay on the sidelines ahead of the release of the Labor Department’s closely watched monthly jobs report on Friday.

Employment is expected to climb by 185,000 jobs in May after surging up by 263,000 jobs in April, while the unemployment rate is expected to hold at 3.6 percent.

The strength of the jobs data could have a notable impact on the perceived prospects for a near-term interest rate cut by the Fed.

After fluctuating early in the session, stocks moved notably higher over the course of the trading day on Wednesday. With the upward move on the day, the major averages extended the substantial rally seen in the previous session.

The major averages reached new highs for the session going into the close of trading. The Dow jumped 207.39 points or 0.8 percent to 25,539.57, the Nasdaq climbed 48.36 points or 0.6 percent to 7,575.48 and the S&P 500 advanced 22.88 points or 0.8 percent to 2,826.15.

Stocks continued to benefit from optimism about a potential interest rate cut after Federal Reserve Chairman Jerome Powell's pledged to sustain the U.S. economic expansion.

Citing uncertainty surrounding trade negotiations and other matters, Powell said in a speech on Tuesday that the central bank will act "as appropriate" to support the economy.

Powell's comments were widely seen as an indication the Fed is prepared to discuss lowering interest rates if escalating global trade disputes weigh down economic growth.

A report from payroll processor ADP showing much weaker than expected private sector job growth in May initially generated some negative sentiment but was subsequently seen as adding to the case for a rate cut.

ADP said private sector employment edged up by 27,000 jobs in May after spiking by a downwardly revised 271,000 jobs in April.

Economists had expected employment to increase by 180,000 jobs compared to the jump of 275,000 jobs originally reported for the previous month.

"Job growth is moderating," said Mark Zandi, chief economist of Moody's Analytics. "Labor shortages are impeding job growth, particularly at small companies, and layoffs at brick-and-mortar retailers are hurting."

Later in the day, traders largely shrugged off the Fed's Beige Book, which said economic activity in the U.S. expanded at a modest pace overall from April through mid-May.

The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, noted the assessment of the overall economy reflected a slight improvement over the slight-to-moderate growth indicated in the previous report.

Interest rate-sensitive utilities and commercial real estate stocks turned in some of the market's best performances amid optimism about a future rate cut.

Reflecting the strength in the sectors, the Dow Jones Utility Average and the Dow Jones U.S. Real Estate Index both surged up by 2.1 percent.

Software and networking stocks also extended the rebound seen in the previous session, driving the Dow Jones U.S. Software Index and the NYSE Arca Networking Index up by 1.9 percent and 1.3 percent, respectively.

On the other hand, energy stocks saw significant weakness on the day, with a steep drop by the price of crude oil weighing on the sector.

Crude for July delivery tumbled following the release of a report showing a weekly jump in U.S. crude oil inventories.

Commodity, Currency Markets

Crude oil futures are climbing $0.48 to $52.16 a barrel after tumbling $1.80 to $51.68 a barrel a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,341.10, up $7.50 compared to the previous session's close of $1,333.60. On Wednesday, gold rose $4.90.

On the currency front, the U.S. dollar is trading at 108.07 yen compared to the 108.46 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1287 compared to yesterday’s $1.1221.

Asia

Asian stocks turned in a mixed performance on Thursday after the U.S. and Mexico failed to reach a deal during their tariff talks on Wednesday.

China's Shanghai Composite Index ended down 33.62 points or 1.2 percent at 2,827.80 after the International Monetary Fund cut China's growth forecast for this year and next, citing downside risks and high uncertainty surrounding trade tensions.

The lender lowered the growth forecast for this year to 6.2 percent from the 6.3 percent seen in April. The projection for next year was trimmed to 6 percent from 6.1 percent.

The IMF added it expects China's growth to gradually slow to 5.5 percent by 2024, as the economy moves towards a more sustainable growth path.

Meanwhile, stocks in Hong Kong showed a modest move to the upside, with the Hang Seng Index rising 69.84 points or 0.3 percent to 26,965.28.

Japanese shares ended roughly flat amid trade uncertainties after the U.S. and Mexico failed to reach a deal on immigration issues. The Nikkei 225 Index fluctuated before finishing marginally lower at 20,774.04. The broader Topix closed 0.3 percent lower at 1,524.91.

Exporters Panasonic, Sony and Honda Motor fell 1-2 percent as the yen hit a five-month high after the release of weak private jobs data from the U.S.

Nissan Motor declined 1.7 percent and Mitsubishi Motors plunged 5.9 percent as Fiat Chrysler Automobiles NV abruptly withdrew its offer to combine with Renault SA, the alliance partner of the two Japanese firms.

Murata Manufacturing, TDK and Taiyo Yuden lost 3-5 percent amid uncertainties over the global trade environment.

On the other hand, Rakuten soared 4.7 percent after the e-commerce company announced a tie-up with East Japan Railway on cashless services.

Australian stocks gained ground as financials extended gains for a third straight session. The benchmark S&P/ASX 200 Index climbed 24.50 points or 0.4 percent to 6,383.00, while the broader All Ordinaries Index ended up 22.80 points or 0.4 percent at 6,466.40.

The big four banks rose between 0.4 percent and 0.8 percent on expectations the Reserve Bank's decision to cut its official interest rate to a record low will improve housing affordability.

Bank of Queensland gained 1 percent after appointing George Frazis, outgoing head of consumer banking at Westpac, as its chief executive and managing director.

Santos gained over 1 percent after confirming a major oil and gas resource at its Dorado-2 appraisal well in Western Australia.

Woodside Petroleum, Oil Search and Origin Energy edged lower as U.S. oil prices plunged back into a bear market. Miners BHP, Rio Tinto and Fortescue Metals Group dropped 1-3 percent after copper weakened to a five-month low.

In economic news, Australia's trade surplus unexpectedly dipped to A$4.87 billion in April from A$4.88 billion in March on higher imports, data from the Australian Bureau of Statistics showed.

Europe

European stocks have risen on Thursday as hopes for more central bank stimulus has helped offset worries surrounding slowing global growth.

Adding to the positive sentiment, European Central Bank indicated interest rates will remain at their current level longer the previously forecast.

The ECB now says it does not expect any change in rates until after the first half of next year. Earlier, the bank forecast rates to remain unchanged at least through the end of this year.

While the U.K.’s FTSE 100 Index has climbed by 0.6 percent, the French CAC 40 Index is up by 0.4 percent and the German DAX Index is up by 0.2 percent.

Entertainment One has soared after the company behind Peppa Pig denied media reports President Mark Gordon is leaving the company.

Drug major AstraZeneca has also advanced. The company announced that the Phase III ELEVATE-TN trial of Calquence (acalabrutinib) met primary endpoint at interim analysis in previously-untreated chronic lymphocytic leukaemia.

On the other hand, shares of Renault have slumped after Fiat Chrysler Automobiles NV withdrew its proposal to merge with the French automaker.

Retail giant Carrefour has also moved to the downside after attributing a recent increase in sales to its use of blockchain tracking.

In economic news, the euro area economy expanded as initially estimated in the second quarter, mainly driven by household spending and investment, data from Eurostat showed.

GDP grew 0.4 percent sequentially, in line with the previous estimate and bigger than the 0.2 percent growth seen in the fourth quarter of 2018. On a yearly basis, GDP growth held steady at 1.2 percent in the first quarter.

German factory orders expanded at a slower pace in April on weak domestic demand, data from Destatis showed.

Factory orders grew 0.3 percent month-on-month in April, weaker than the revised 0.8 percent increase seen in March. However, the latest increase was slightly faster than the expected 0.2 percent.

U.S. Economic Reports

A day ahead of the release of the more closely watched monthly jobs report, the Labor Department released a report showing first-time claims for U.S. unemployment benefits came in unchanged in the week ended June 1st.

The report said initial jobless claims came in at 218,000, unchanged from the previous week’s revised level.

Economists had expected jobless claims to come in unchanged compared to the 215,000 originally reported for the previous week.

A separate report released by the Commerce Department showed the U.S. trade deficit narrowed in the month of April.

The Commerce Department said the trade deficit narrowed to $50.8 billion in April from a revised $51.9 billion in March.

Economists had expected the deficit to widen to $50.7 billion from the $50.0 billion originally reported for the previous month.

The narrower deficit came as the value of imports fell by $5.7 billion or 2.2 percent to $257.6 billion, while the value of exports dropped by $4.6 billion or 2.2 percent to $206.8 billion.

At 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auctions of three-year and ten-year notes and thirty-year bonds.

New York Federal Reserve President John Williams is due to deliver the keynote remarks at the Peter McColough Series on International Economics event held by the Council on Foreign Relations in New York at 1 pm ET.

Stocks In Focus

Shares of Ciena (CIEN) are moving sharply higher in pre-market trading after the networking company reported fiscal second quarter results well above analyst estimates.

Food producer J.M. Smucker (SJM) may also see initial strength after reporting better than expected fiscal fourth quarter earnings and providing upbeat full-year guidance.

Shares of Advanced Micro Devices (AMD) may also move to the upside after Morgan Stanley upgraded its rating on the chipmaker to Equal-Weight from Underweight.

On the other hand, Michaels (MIK) are seeing significant pre-market weakness after the arts and crafts retailer reported fiscal first quarter sales that missed estimates and lowered its full-year profit outlook.
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