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Beyond the Numbers

Weak Jobs Data May Add To Rate Cut Optimism
6/7/2019 8:56 AM

The major U.S. index futures are currently pointing to a modestly higher opening on Friday following the release of the Labor Department’s closely watched monthly jobs report.

The Dow futures have given back some ground but are currently up by 23 points even though the Labor Department report showed a substantial slowdown in the pace of U.S. job growth in the month of May.

The Labor Department said non-farm payroll employment rose by 75,000 jobs in May after soaring by a downwardly revised 224,000 jobs in April.

Economists had expected employment to increase by about 185,000 jobs compared to the jump of 263,000 jobs originally reported for the previous month.

Meanwhile, the report said the unemployment rate came in at 3.6 percent in May, unchanged from the previous month and in line with economist estimates.

While the data paints a troubling picture for the U.S. economy, the report has also added to optimism about that the Federal Reserve will consider lowering interest rates in the near future.

After showing a lack of direction throughout much of the session, stocks showed a notable advance late in the trading day on Thursday. With the late-day jump, the major averages extended the strong upward move seen over the two previous sessions.

The major averages pulled back off their best levels of the day going into the close but remained firmly positive. The Dow advanced 181.09 points or 0.7 percent to 25,720.66, the Nasdaq rose 40.08 points or 0.5 percent to 7,615.55 and the S&P 500 climbed 17.34 points or 0.6 percent to 2,843.49.

Considerable buying interest was generated late in the session after a report from Bloomberg News indicating the U.S. is considering delaying President Donald Trump's threatened tariffs on Mexico.

A person familiar with the matter told Bloomberg that Mexico is pushing for more time to negotiate amid concerns the two sides won't reach an agreement on all the steps Mexico needs to take to stop the flow of migrants before a Monday deadline.

Bloomberg was told by a U.S. official that the most likely outcome is still that a 5 percent tariff goes into effect but that the duties could be short-lived if Mexico follows through on its promises.

Earlier in the session, traders seemed reluctant to make significant moves ahead of the release of the Labor Department's monthly jobs report.

A day ahead of the release of the more closely watched monthly 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.

Networking stocks moved sharply higher over the course of the session, resulting in a 2 percent spike by the NYSE Arca Networking Index.

Ciena (CIEN) led the sector higher, soaring by 26.7 percent after the networking company reported fiscal second quarter results well above analyst estimates.

Significant strength also emerged among oil stocks, as reflected by the 1.7 percent jump by the NYSE Arca Oil Index. The strength in the sector came amid a notable increase by the price of crude oil.

Semiconductor, gold, software, and tobacco stocks also showed notable moves to the upside, contributing to the late-day advance by the broader markets.

Commodity, Currency Markets

Crude oil futures are rising $0.56 to $53.15 a barrel after jumping $0.91 to $52.59 a barrel on Thursday. Meanwhile, after climbing $9.10 to $1,342.70 an ounce in the previous session, gold futures are up $6 at $1,347.70 an ounce.

On the currency front, the U.S. dollar is trading at 107.90 yen versus the 108.40 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1324 compared to yesterday’s $1.1276.

Asia

Asian stocks rose on Friday after a Bloomberg report cited unidentified sources saying that the Trump administration could delay tariffs on Mexican imports.

Investors also looked ahead to the U.S. jobs data for May due to be released later in the day for further clues on the prospects for a near-term interest rate cut by the Federal Reserve.

Japanese shares ended solidly higher as investors awaited the outcome of the U.S.-Mexican tariff talks as well as the release of the latest U.S. jobs report.

Investors shrugged off a report showing that average household spending in Japan rose an annual 1.3 percent in April, missing expectations for an increase of 2.7 percent and down from 2.1 percent in March.

The Nikkei 225 Index rose 110.67 points or 0.53 percent to 20,884.71, while the broader Topix ended 0.5 percent higher at 1,532.39.

Chip-related stocks led the surge, with Advantest climbing 5.1 percent and Tokyo Electron rising 2.8 percent. Hitachi High-Technologies jumped 14.7 percent on a Nikkei report that parent Hitachi is considering turning the company into a 100 percent subsidiary.

Australian markets extended gains for the fourth straight session as investors lapped up shares of companies offering high dividend yields. The benchmark S&P/ASX 200 Index jumped 60.90 points or 1 percent to 6,443.90, while the broader All Ordinaries Index ended up 58.80 points or 0.9 percent at 6,525.20.

The big four banks rose between 0.4 percent and 0.8 percent on hopes of more policy easing as the U.S.-China trade war raises global recession risks. Mining heavyweights BHP and Rio Tinto gained 1-2 percent.

Energy stocks such as Oil Search, Woodside Petroleum and Santos gained 1-2 percent as oil extended overnight gains amid signs that OPEC and allies may extend crude supply cuts.

Bulk grains handler GrainCorp soared 6 percent after it secured a ten-year deal with a global insurer to reduce cash flow volatility linked to eastern Australian grain production during droughts.

On the data front, Australia's lending commitments to households rose 0.6 percent in April, official data showed. That followed a 3.3 percent fall in March.

Europe

European stocks have moved notably higher on Friday and remain on course to notch their best weekly performance in two months, as optimism prevailed about a possible tariff deal between the U.S. and Mexico and the prospect of more stimulus on both sides of the Atlantic.

While the French CAC 40 Index has surged up by 1.3 percent, the U.K.’s FTSE 100 Index is up by 0.7 percent and the German DAX Index is up by 0.5 percent.

Energy stocks are broadly higher, with BP Plc and Total SA rising over 1 percent each as oil prices extend overnight gains amid indications that OPEC and allies may extend crude supply cuts.

Iron ore miner Ferrexpo has also jumped after issuing an upbeat trading update, while tabletop gaming retailer Games Workshop has soared after saying its full-year profit would rise 7 percent.

French drug maker Sanofi has also shown a substantial move to the upside on the day after appointing a new chief executive.

In economic news, Germany industrial output slid 1.9 percent sequentially in April, in contrast to a 0.5 percent rise seen in March, a government report showed. Production was forecast to dip by 0.2 percent.

German exports decreased by seasonally adjusted 3.7 percent month-on-month in April compared to a 1.6 percent rise in March. Imports fell 1.3 percent, reversing March's 0.7 percent increase.

French industrial output rose 0.4 percent in April from March when it was down 1.1 percent, official data showed. The country's trade deficit narrowed in April after widening in March.

U.K. house prices grew only 0.5 percent month-on-month in May after gaining 1.2 percent in April, figures from the Lloyds Bank subsidiary Halifax and IHS Markit showed. Nonetheless, this was the second consecutive rise in prices and above the forecast of flat growth.

U.S. Economic Reports

Job growth in the U.S. showed a substantial slowdown in the month of May, according to a closely watched report released by the Labor Department.

The Labor Department said non-farm payroll employment rose by 75,000 jobs in May after soaring by a downwardly revised 224,000 jobs in April.

Economists had expected employment to increase by about 185,000 jobs compared to the jump of 263,000 jobs originally reported for the previous month.

Meanwhile, the report said the unemployment rate came in at 3.6 percent in May, unchanged from the previous month and in line with economist estimates.

At 10 am ET, the Commerce Department is scheduled to release its report on wholesale inventories in the month of April. Wholesale inventories are expected to climb by 0.7 percent.

The Federal Reserve is due to release its report on consumer credit in the month of April at 3 pm ET. Economists expect consumer credit to increase by $12.0 billion.

Stocks In Focus

Shares of Barnes & Noble (BKS) are moving sharply higher in pre-market trading after the bookseller agreed to be acquired by Elliott Advisors for $6.50 per share in an all-cash transaction valued at approximately $683 million.

Plant-based alternative meat company Beyond Meat (BYND) is also likely to see an initial spike after reporting better than expected fiscal first quarter results in its first quarterly report since going public.

On the other hand, shares of DocuSign (DOCU) are seeing significant pre-market weakness even though the company reported fiscal first quarter results that beat analyst estimates and raised its guidance.
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