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Beyond the Numbers

Disappointing Jobs Data May Weigh On Wall Street
10/2/2019 8:54 AM

The major U.S. index futures are pointing to a lower opening on Wednesday, with stocks likely to see further downside following the sharp pullback seen over the course of the previous session.

Concerns about the economic outlook may continue to weigh on the markets following the release of a report from payroll processor ADP showing a slowdown in the pace of private sector job growth in the month of September.

ADP said private sector employment climbed by 135,000 jobs in September compared to economist estimates for an increase of about 140,000 jobs.

The report also showed a significant downward revision to the increase in private sector jobs in August, which was slashed to 157,000 jobs from the originally reported 195,000 jobs.

“Businesses have turned more cautious in their hiring,” said Mark Zandi, chief economist of Moody’s Analytics. “If businesses pull back any further, unemployment will begin to rise.”

Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, noted the average monthly job growth for the past three months has fallen to 145,000 from 214,000 in the same time period last year.

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 140,000 jobs in September after rising by 130,000 jobs in August, while the unemployment rate is expected to hold at 3.7 percent.

After an early move to the upside, stocks showed a significant downturn over the course of the trading session on Tuesday. The major averages pulled back well off their highs of the session and firmly into negative territory.

The major averages moved to the downside going into the close, ending the day near their lows of the session. The Dow plunged 343.79 points or 1.3 percent to 26,573.04, the Nasdaq slumped 90.65 points or 1.1 percent to 7,908.68 and the S&P 500 tumbled 36.49 points or 1.2 percent to 2,940.25.

The sharp pullback on Wall Street came following the release of a report from the Institute for Supply Management showing a continued contraction in U.S. manufacturing activity in the month of September.

The ISM said its purchasing managers index dropped to 47.8 in September from 49.1 in August, with a reading below 50 indicating a contraction in manufacturing activity. Economists had expected the index to inch up to 50.1.

With the unexpected decrease, the index fell to its lowest level since hitting 46.3 in June of 2009, the last month of the Great Recession.

Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted the contraction continues six straight months of softening in manufacturing.

"Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019," Fiore said. "Overall, sentiment this month remains cautious regarding near-term growth."

The new export orders index slid to 41.0 in September from 43.3 in August, falling to its lowest level since hitting 39.4 in March of 2009.

Economists noted the disappointing data may also reflect the ongoing strike at General Motors (GM), which has also begun to affect production at suppliers.

Meanwhile, President Donald Trump blamed the weak manufacturing data on the Federal Reserve, which he blasted as "pathetic" in a post on Twitter.

"As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected. Fed Rate too high. They are their own worst enemies, they don't have a clue. Pathetic!" Trump tweeted.

Brokerage stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Broker/Dealer Index down by 5.9 percent to its lowest closing level in a month.

Online brokers fell sharply after Charles Schwab (SCHW) announced plans to eliminate online trade commissions for U.S. stocks, exchange traded funds and options as part of an escalating price war.

Considerable weakness also emerged among oil service stocks, as reflected by the 3.4 percent nosedive by the Philadelphia Oil Service Index. The weakness among oil service stocks came amid a decrease by the price of crude oil.

Natural gas, networking, banking and chemical stocks also saw significant weakness on the day, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are rising $0.22 to $53.84 a barrel after sliding $0.45 to $53.62 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,494.10, up $5.10 compared to the previous session’s close of $1,489. On Tuesday, gold climbed $16.10.

On the currency front, the U.S. dollar is trading at 107.50 yen compared to the 107.75 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0930 compared to yesterday’s $1.0933.

Asia

Asian stocks fell on Wednesday as weak manufacturing data from the U.S. and the eurozone added to investor worries about slowing global economic growth. Markets were further rattled by North Korea's firing of what is believed to be a submarine-launched ballistic missile.

Mainland Chinese markets remained closed for the National Day holiday, while Hong Kong's Hang Seng Index slipped 49.58 points, or 0.2 percent, to 26,042.69 after fresh violent demonstrations in the city that saw one protester shot by police.

Japanese shares also fell as weak manufacturing data from the U.S. offered fresh evidence that the U.S.-China trade war is slowing global growth.

The Nikkei 225 Index dropped 106.63 points, or 0.5 percent, to 21,778.61, while the broader Topix closed 0.4 percent lower at 1,596.29.

Exporters ended broadly lower as the weak U.S. data weighed on the U.S. dollar and prompted some long-unwinding trade. Toyota Motor, Honda Motor and Sony declined 1-2 percent.

Tech stocks closed on a mixed note, with Advantest rising 0.7 percent, while Tokyo Electron dropped 1.1 percent. Market heavyweight SoftBank gave up 2.7 percent.

In economic news, Japanese firms' inflation expectations held steady in the third quarter, the Tankan summary of "Inflation Outlook of Enterprises" from Bank of Japan showed today. Companies expect annual inflation of 0.9 percent in the year ahead, unchanged from the previous outlook.

Australian markets fell sharply to hit a three-week low as investors fretted over slowing global growth. The benchmark S&P/ASX 200 Index tumbled 102.90 points, or 1.5 percent, to 6,639.90, while the broader All Ordinaries Index ended the session down 99.70 points, or 1.5 percent, at 6,753.30.

National Australia Bank lost 2.3 percent after the lender said it would set aside a further A$1.18 billion (S$1.1 billion) to repay wrongly charged customer fees. The other three big banks fell between 1.5 percent and 2.1 percent.

Lower commodity prices pulled down miners, with BHP and Rio Tinto falling 1.9 percent and 1.6 percent, respectively. Energy stocks such as Woodside Petroleum and Santos dropped over 1 percent, while Beach Energy slumped 3.2 percent.

Mayne Pharma Group soared 19 percent after it signed a 20-year supply and license agreement with Belgium-based Mithra Pharmaceuticals to commercialize a new contraceptive drug.

Seoul stocks plunged as weak manufacturing data from the U.S. and the eurozone coupled with rising geopolitical tensions sapped investors' appetite for risk.

After North Korea fired a ballistic missile from the sea, the National Security Council in Seoul expressed "strong concern" over the launch of what it said may have been a submarine-launched ballistic missile.

The Kospi lost 40.51 points, or 2 percent, to finish at 2,031.91. Samsung Electronics declined 2.6 percent, while SK Hynix and Hyundai Motor lost around 3 percent each.

Europe

European stocks have tumbled on Wednesday, extending losses from the previous session as global growth worries persist and investors wait for Prime Minister Boris Johnson's radical contemporary Brexit proposal to be unveiled later in the day.

Intensifying protests in Hong Kong and tensions on the Korean Peninsula also remain on investors' radar.

While the U.K.’s FTSE 100 Index has plunged by 2.2 percent, the French CAC 40 Index is down by 1.7 percent and the German DAX Index is down by 1.3 percent.

Bouygues Group has declined after Colas, a subsidiary of the industrial group, announced that Herve Le Bouc is resigning as Chairman of the Board of Director.

SAP shares have also moved to the downside. The software giant has partnered with Indian IT consulting company Infosys for a new strategic program, Innov8, to accelerate enterprise digital transformation journeys using SAP digital solutions.

Hochschild Mining has also slumped as it acquired the BioLantanidos ionic clay rare earth deposit in Chile. Standard Life Aberdeen has declined after announcing a change to its Board of Directors.

On the other hand, Grenke shares have moved sharply higher after the financing firm raised its full-year new business forecast.

Flutter Entertainment shares have also soared after the betting and gaming operator reached an agreement to acquire Canada's The Stars Group.

In economic news, Germany's leading economic institutes slashed the economic growth forecast for this year and next, mainly citing weakening global demand for capital goods exports.

The growth forecast for this year was lowered to 0.5 percent from 0.8 percent and the outlook for next year was slashed to 1.1 percent from 1.8 percent.

The U.K. construction sector contracted further in September, survey data from IHS Markit showed. The IHS Markit/Chartered Institute of Procurement & Supply construction Purchasing Managers' Index fell to 43.3 in September from 45.0 in August.

U.S. Economic Reports

Adding to signs of a slowdown in the U.S. job market, payroll processor ADP released a report showing private sector employment rose by slightly less than expected in the month of September.

ADP said private sector employment climbed by 135,000 jobs in September compared to economist estimates for an increase of about 140,000 jobs.

The report also showed a significant downward revision to the increase in private sector jobs in August, which was slashed to 157,000 jobs from the originally reported 195,000 jobs.

Philadelphia Federal Reserve President Patrick Harker is scheduled to give the keynote on second day of 2019 Community Banking Research Conference, in St. Louis, Missouri, at 9 am ET.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended September 27th.

Crude oil inventories are expected to increase by 1.6 million barrels after rising by 2.4 million barrels in the previous week.

New York Fed President John Williams is scheduled to participate in a moderated discussion at the UC San Diego Economics Roundtable Lecture Series in La Jolla, California, at 10:50 am ET.

Stocks In Focus

Shares of Stitch Fix (SFIX) are moving sharply lower in pre-market trading after the online personal styling service reported better than expected fiscal fourth quarter earnings but provided disappointing guidance.

Online brokers may also extend yesterday’s slump after TD Ameritrade (AMTD) said it will eliminate commissions for its online exchange-listed stock, ETF and option trades following a similar move by Charles Schwab.

Monster Beverage (MNST) may also come under pressure after Guggenheim Securities downgraded its rating on the energy drink maker’s stock to Neutral from Buy.

On the other hand, shares of Lennar (LEN) are likely to see initial strength after the homebuilder reported fiscal third quarter results that beat analyst estimates on both the top and bottom lines.
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