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Beyond the Numbers

Looming Jobs Report May Lead To Choppy Trading On Wall Street
10/3/2019 8:57 AM

The major U.S. index futures are pointing to a pointing to a roughly flat opening on Thursday following the sharp drop seen over the two previous sessions.

Traders may be reluctant to make significant moves ahead of the release of the Labor Department’s closely watched monthly jobs report on Friday.

Employment is expected to increase by 145,000 jobs in September after rising by 130,000 jobs in August, while the unemployment rate is expected to hold at 3.7 percent.

Disappointing reports on manufacturing activity and private sector employment contributed to the sell-off seen on Tuesday and Wednesday.

Traders are also digesting news the U.S. plans to impose World Trade Organization-authorized tariffs on European goods after winning a dispute over European Union subsidies to aircraft maker Airbus.

The U.S. has the authority to apply a 100 percent tariff on up to $7.5 billion worth of goods, but the U.S. Trade Representative said the tariff increases would initially be limited to 10 percent on large civil aircraft and 25 percent on agricultural and other products.

Stocks moved sharply lower over the course of the trading day on Wednesday, extending the significant pullback seen on Tuesday. With the continued weakness on the day, the major averages fell to their lowest closing levels in over a month.

The major averages climbed off their lows of the session but still closed firmly in negative territory. The Dow plummeted 494.42 points or 1.9 percent to 26,078.62, the Nasdaq slumped 123.44 points or 1.6 percent to 7,785.25 and the S&P 500 tumbled 52.64 points or 1.8 percent to 2,887.61.

The sell-off on Wall Street came as disappointing jobs data from payroll processor ADP added to the economic concerns raised by Tuesday’s weak manufacturing data.

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.

Steel stocks showed a substantial move to the downside on the day in an indication of concerns about the outlook for global demand.

Reflecting the weakness in the sector, the NYSE Arca Steel Index plunged by 3 percent to its lowest closing level in a month.

Significant weakness also emerged among oil stocks, which moved lower along with the price of crude oil. With crude for November delivery tumbling $0.98 to $52.64 a barrel, the NYSE Arca Oil Index slumped by 2.6 percent.

Brokerage stocks also extended Tuesday’s sell-off 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 (SCHW).

Transportation, banking and telecom stocks also saw considerable weakness on the day amid broad based selling pressure on Wall Street.

Meanwhile, gold stocks were among the few groups to buck the downtrend, benefiting from a sharp increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are slipping $0.14 to $52.50 a barrel after tumbling $0.98 to $52.64 a barrel on Wednesday. Meanwhile, after jumping $18.90 to $1,507.90 an ounce in the previous session, gold futures are edging down $1.90 to $1,506 an ounce.

On the currency front, the U.S. dollar is trading at 107.03 yen compared to the 107.18 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0963 compared to yesterday’s $1.0959.

Asia

Asian stocks tumbled on Thursday after Washington opened a new front in its trade war with Europe, adding to uncertainty surrounding the U.S.-China trade war. Weak U.S. data also rekindled investor concerns about slowing global growth.

The U.S. proposed to impose tariffs on $7.5 billion of goods from the European Union as part of a long-running complaint over subsidies given to European plane maker Airbus. The Office of the U.S. Trade Representative said that the tariffs would take effect on October 18.

Markets in South Korea and China were closed for public holidays, while Hong Kong’s Hang Seng Index ended up 0.3 percent at 26,110.31. Media reports suggested that Hong Kong will use an emergency ordinance for the first time in more than a half a century in order to ban face masks at public gatherings.

Japanese shares tumbled as weak U.S. data offered fresh evidence of the damaging effects of the U.S.-China trade war. Investors also reacted to the latest survey from Jibun Bank revealing that the Japanese services sector expanded at a slower rate in September.

The Nikkei 225 Index plunged 436.87 points, or 2 percent, to 21,341.74, the lowest level since September 9. The broader Topix closed 1.7 percent lower at 1,568.87, a more than three-week low.

Automakers Toyota Motor, Honda Motor, Nissan and Suzuki Motor declined 2-4 percent, pressured by a rising yen. Canon and Panasonic ended down over 2 percent each.

Index heavyweight Fast Retailing plummeted 3.9 percent after its same-store sales fell 4.2 percent in September from a year earlier.

Australian markets sank after the release of weak U.S. data and the U.S. decision to impose new tariffs on a wide range of EU goods.

The benchmark S&P/ASX 200 Index hit more than one-month lows before recovering some lost ground to end down 146.90 points, or 2.2 percent, at 6,493.

The broader All Ordinaries index fell 141.60 points, or 2.1 percent, to 6,611.70 amid a broad-based sell-off, with gold stocks bucking the downward trend as gold prices surged on safe-haven buying.

National Australia Bank lost 3.5 percent a day after the lender nearly doubled the cost of compensating customers for years of misconduct. The other three big banks fell between 2.4 percent and 2.8 percent.

Energy stocks such as Woodside Petroleum and Santos plunged 3-4 percent as oil held near the lowest level in almost two months.

Global miners BHP Group and Rio Tinto gave up 3-4 percent, while gold miners Evolution and Newcrest surged 2-3 percent.

Agricultural firm Webster spiked 53 percent after it signed a deal for an A$854 million ($572.52 million) takeover by shareholder PSP Investments.

In economic news, Australia's trade surplus decreased in August, as exports were down on weak commodity prices, figures from the Australian Bureau of Statistics showed today.

However, a survey from IHS Markit showed that Australia's private sector recovered at the end of third quarter, reflecting an improvement in the service sector.

Europe

European stocks are turning in a mixed performance on Thursday as bargain hunters step in after a two-day rout on worries over slowing global growth.

The downside remained limited after the size and scope of new U.S. tariffs in retaliation over EU aircraft subsidies were reduced considerably from a $25 billion list floated by Washington earlier this year. The tariffs excluded cognac, champagne and leather goods.

U.K. stocks were moving lower to extend losses for the fourth straight session after data showed the U.K. economy's dominant services sector shrank in September amid a deepening economic slowdown.

Markets in Germany remained closed for the Day of German Unity, while the U.K.’s FTSE 100 Index has slumped by 1 percent and the French CAC 40 Index is up by 0.4 percent.

Airbus shares have rallied in Paris as the new U.S. list spared some Airbus parts. Spirits makers Remy Cointreau and Pernod Ricard have also jumped.

Swiss specialty chemicals company Sika has also moved sharply higher after the company said it plans to grow by 6-8 percent a year up to 2023.

Swedish clothing retail firm H&M Group has also soared after reporting a 12 percent increase in its third-quarter sales.

On the other hand, Centamin shares have slumped in London. The gold miner announced that Andrew Pardey has informed the Board of his intention to retire as Chief Executive Officer.

Transport group Stagecoach has also moved to the downside after the company said it will stop its share buyback program once it has reached £30 million.

In economic news, the euro area private sector expanded at the slowest pace in more than six years in September, final data from IHS Markit showed.

The final composite output index fell to 50.1 from 51.9 in August. The reading was below the flash estimate of 50.4.

Manufacturers logged the sharpest drop in output for nearly seven years in September. The service sector continued to expand, but the pace of growth was the weakest since the start of 2019. The services PMI came in at 51.6, down from 53.5 in the previous month.

Germany's composite PMI fell to an 83-month low of 48.5 from 51.7 a month ago. France's composite output index dropped to 50.8 from 52.9 in August.

Separately, Eurostat data showed that retail sales in the 19-nation bloc rose by an annual 2.1 percent in August versus the 1.9 percent expected.

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 a modest increase in first-time claims for U.S. unemployment benefits in the week ended September 28th.

The report said initial jobless claims rose to 219,000, an increase of 4,000 from the previous week's revised level of 215,000.

Economists had expected jobless claims to inch up to 215,000 from the 213,000 originally reported for the previous week.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on service sector activity in the month of September.

The ISM’s non-manufacturing index is expected to slip to 55.1 in September from 56.4 in August, with a reading above 50 indicating growth in the service sector.

The Commerce Department is also due to release its report on factory orders in the month of August at 10 am ET. Factory orders are expected to dip by 0.2 percent in August after jumping by 1.4 percent in July.

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

Cleveland Federal Reserve President Loretta Mester is due to participate in a panel discussion on inflation and the implications for monetary and other policy at a Hutchins Center on Fiscal and Monetary Policy event in Washington, D.C., at 12:10 pm ET.

At 6:35 pm ET, Fed Vice Chairman Richard Clarida is scheduled to speak on the outlook for the economy and monetary policy at the Wall Street Journal's Future of Global Markets event in New York.

Stocks In Focus

Shares of Bed Bath Beyond (BBBY) may come under pressure after the housewares retailer reported better than expected fiscal second quarter earnings but weaker than expected sales.

Spirits producer Constellation Brands (STZ) is also moving notably lower in pre-market trading despite reporting fiscal second quarter adjusted earnings that exceeded analyst estimates.

Shares of GoPro (GPRO) are also seeing substantial pre-market weakness after the action camera maker cut its second half sales forecast.

On the other hand, shares of PepsiCo (PEP) may see initial strength after the beverage and snack giant reported third quarter results that beat expectations on both the top and bottom lines.
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