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Beyond the Numbers

Futures Remain Positive Despite Weaker Than Expected Jobs Data
9/6/2019 8:57 AM

The major U.S. index futures are currently pointing to a higher opening on Friday, with stocks likely to extend the strong upward move seen over the two previous sessions.

The futures remained positive even though a closely watched Labor Department report showing employment in the U.S. increased by less than expected in the month of August.

The report said non-farm payroll employment rose by 130,000 jobs in August after climbing by a downwardly revised 159,000 jobs in July. Economists had expected employment to increase by about 158,000 jobs.

Despite the weaker than expected jobs data, the markets may continue to benefit from optimism about next month’s U.S.-China trade talks.

Following the significant rebound seen on Wednesday, stocks showed another strong move to the upside during trading on Thursday. With the continued advance, the major averages ended the session at their best closing levels in over a month.

The major averages ended the day off their highs of the session but still firmly in positive territory. The Dow surged up 372.68 points or 1.4 percent to 26,728.15, the Nasdaq spiked 139.95 points or 1.8 percent to 8,116.83 and the S&P 500 jumped 38.22 points or 1.3 percent to 2,976.00.

The rally on Wall Street partly reflected a positive reaction to news that the U.S. and China plan to hold high level trade talks in early October.

A statement from China's Commerce Ministry said both sides agreed to the new round of talks during a phone call between Chinese Vice Premier and chief trade negotiator Liu He and U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

"Both sides agreed they should work together and take practical actions to create favorable conditions for the negotiations," China's Commerce Ministry said, according to a CNBC translation.

A spokesperson for the U.S. Trade Representative's office confirmed the phone call and said the U.S. and China agreed to hold meetings "in the coming weeks."

U.S. and Chinese officials will purportedly hold deputy-level talks later this month in preparation for the meeting in October.

A report from payroll processor ADP showing stronger than expected private sector job growth in August also generated buying interest.

The report said private sector employment surged up by 195,000 jobs in August after climbing by a downwardly revised 142,000 jobs in July.

Economists had expected employment to increase by about 149,000 jobs compared to the addition of 156,000 jobs originally reported for the previous month.

"Businesses are holding firm on their payrolls despite the slowing economy," said Mark Zandi, chief economist of Moody's Analytics. "Hiring has moderated, but layoffs remain low. As long as this continues recession will remain at bay."

On Friday, the Labor Department is scheduled to release its more closely watched monthly jobs report, which includes both public and private sector jobs.

Employment is expected to increase by 158,000 jobs in August after climbing by 164,000 jobs in July, while the unemployment rate is expected to hold at 3.7 percent.

Shortly after the start of trading, the Institute for Supply Management released a separate report showing a notable acceleration in the pace of growth in U.S. service sector activity in the month of August.

The ISM said its non-manufacturing index climbed to 56.4 in August after falling to 53.7 in July, with a reading above 50 indicating growth in service sector activity. Economists had expected the index to inch up to 54.0.

The bigger than expected increase by the non-manufacturing index came after it dropped to its lowest level since August of 2016 in the previous month.

Oil service stocks turned in some of the market's best performances on the day, driving the Philadelphia Oil Service Index up by 4.1 percent to its best closing level in nearly a month.

The rally by oil service stocks came even though the price of crude oil pulled back near the unchanged after moving sharply higher early in the session.

Substantial strength was also visible among semiconductor stocks, as reflected by the 3.1 percent jump by the Philadelphia Semiconductor Index.

Financial, transportation, computer hardware and steel stocks also saw considerable strength on the day, reflecting broad-based buying interest.

Meanwhile, gold stocks were among the few groups to buck the uptrend, with a steep drop by the price of the precious metal weighing on the sector.

Commodity, Currency Markets

Crude oil futures are sliding $0.92 to $55.38 a barrel after inching up $0.04 to 56.30 a barrel on Thursday. Meanwhile, after plunging $34.90 to $1,525.50 an ounce in the previous session, gold futures are slipping $1.80 to $1,523.70 an ounce.

On the currency front, the U.S. dollar is trading at 106.86 yen versus the 106.94 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1040 compared to yesterday’s $1.1035.

Asia

Asian stocks rose on Friday to extend gains from the previous session after separate surveys showed U.S. private payrolls and the services industry rebounding last month.

News that U.S.-China trade talks were back on the table also supported sentiment ahead of the release of U.S. jobs data for August later in the day.

Chinese stocks rose as Beijing continued to emphasize support for the economy. The benchmark Shanghai Composite Index climbed 13.74 points, or 0.5 percent, to 2,999.60 and ended the week up 3.9 percent, marking its best weekly gain since late June.

"(We) will use both broad and targeted RRR cuts in a timely manner as tools to guide financial institutions to guide more funds into inclusive finance, and ramp up support for the real economy," China's cabinet said in a meeting on Wednesday.

Hong Kong's Hang Seng Index ended up 175.23 points, or 0.7 percent, at 26,690.76 despite global rating agency Fitch Ratings downgrading Hong Kong's long-term foreign currency issuer default rating.

The rating agency observed that ongoing demonstrations have done long-lasting damage to international perceptions about the effectiveness of Hong Kong's governance system and rule of law.

Japanese shares closed higher for the fourth straight day as the yen retreated against the dollar on the back of upbeat U.S. data and amid comments from Bank of Japan Governor Haruhiko Kuroda suggesting that cutting interest rates further into the negative zone is always an option.

The Nikkei 225 Index rose 113.63 points, or 0.5 percent, to 21,199.57, while the broader Topix closed 0.2 percent higher at 1,537.10.

Honda Motor jumped 3 percent and Panasonic gained 1.8 percent as the dollar climbed to a one-month high against the yen. Market heavyweight SoftBank declined 2.7 percent, while Fast Retailing rose 1.8 percent.

Daiwa Securities rose 0.9 percent after it announced a capital alliance with credit card company Credit Saison. Shares of the latter rallied 2.2 percent.

Rakuten slumped 5.2 percent on a Nikkei report that the e-commerce group will delay the commercial launch of its wireless carrier service by six months due to slow progress in building the network.

On the data front, a government report revealed that average household spending in Japan rose an annual 0.8 percent in July, matching expectations.

Australian shares eked out modest gains amid signs of a slight thaw in U.S.-China relations. The benchmark S&P/ASX 200 Index rose 34.10 points, or 0.5 percent, to 6,647.30, while the broader All Ordinaries Index ended up 31.90 points, or 0.5 percent, at 6,752.70.

Tech stocks paced the gainers after the Nasdaq closed up above 8,000 overnight. Afterpay Touch soared 4.1 percent and Computershare jumped 3.2 percent.

Rare earths producer Lynas Corp added 2.9 percent after it signed a pact with a city in Western Australia to explore a potential initial ore processing site.

Mining giants BHP and Rio Tinto rose 0.7 percent and 0.4 percent, respectively, while smaller rival Fortescue Metals Group gained 1.7 percent after completing a $600 million bond offering. The big four banks rose between 0.4 percent and 0.9 percent.

Gold miners Evolution, Newcrest, Northern Star, Regis Resources and Saracen Mineral Holdings lost 2-5 percent as gold fell its most in a day for 2019 on news that the U.S. and China plan to hold talks next month.

In economic news, investors shrugged off survey data showing that the construction sector in Australia continued to contract in August, albeit at a slower pace.

Seoul stocks extended gains for the third day as trade concerns abated and solid U.S. data helped ease global growth worries. The benchmark Kospi edged up 4.38 points, or 0.2 percent, to close at 2,009.13. Technology firms, financials and shipbuilders paced the gainers.

Europe

European stocks are turning in a lackluster performance on Friday as traders weigh hopes of a possible breakthrough in the U.S.-China trade against the disappointing U.S. jobs data.

Sentiment was boosted after China's central bank proposed to cut the reserve requirement ratio for financial institutions by 50 basis points in the latest effort to inject liquidity into an economy facing headwinds to growth.

While the German DAX Index is up by 0.5 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are nearly unchanged.

Thyssenkrupp shares have rallied after Finland's Kone said it is considering teaming up with a private equity partner to bid for the German conglomerate's elevator business.

Berkeley Group Holdings has also jumped in London after a positive trading update for the first four months of this new financial year.

Engineering business Weir Group is also posting a strong gain as it won a 100 million pounds order for Australian magnetite iron ore project.

Ashmore Group has also advanced after it delivered strong results for the year on the back of 24 percent AuM growth and continued investment outperformance.

In economic news, German industrial production fell 0.6 percent in July, confounding expectations for an increase of 0.3 percent, data from Destatis showed.

Eurostat data showed that Euro zone growth halved in the second quarter of this year. The region's GDP grew 0.2 percent in the second quarter after a 0.4 percent expansion in the first three months of the year, as Germany's economy shrank and trade as a whole slowed in the quarter.

Britons' one-year inflation expectations rose in August, the latest quarterly Inflation Attitudes Survey from the Bank of England and TNS revealed.

Respondents forecast inflation to rise to 3.3 percent over the coming year compared to the previous forecast of 3.1 percent. Inflation is expected to ease to 3 percent in twelve months after one year.

U.S. Economic Reports

Employment in the U.S. increased by less than expected in the month of August, according to a closely watched report released by the Labor Department on Friday.

The report said non-farm payroll employment rose by 130,000 jobs in August after climbing by a downwardly revised 159,000 jobs in July.

Economists had expected employment to increase by about 158,000 jobs compared to the addition of 164,000 jobs originally reported for the previous month.

The Labor Department also said the unemployment rate held at 3.7 percent in August, unchanged from July and in line with economist estimates.

At 12:30 pm ET, Federal Reserve Chairman Jerome Powell is scheduled to speak on the economic outlook and monetary policy at the University of Zurich in Zurich, Switzerland.

Stocks In Focus

Shares of DocuSign (DOCU) are moving sharply higher in pre-market trading after the provider of electronic signature technology reported fiscal second quarter results that beat expectations on both the top and bottom lines.

Yogawear maker Lululemon (LULU) may also see initial strength after reporting better than expected fiscal second quarter results and raising its full-year guidance.

On the other hand, shares of CrowdStrike (CRWD) have come under pressure in pre-market trading even though the cybersecurity company reported a narrower than expected fiscal second quarter loss.
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