logo

Market Analysis

mail
Share
Beyond the Numbers

Futures Turn Positive Following Monthly Jobs Report
10/4/2019 9:01 AM

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

The turnaround by the futures came after the Labor Department released a report showing U.S. employment increased by less than expected in the month of September, although the report also showed upward revisions to job growth in the two previous months.

The report said non-farm payroll employment rose by 136,000 jobs in September compared to economist estimates for an increase of about 145,000 jobs.

Meanwhile, the increases in employment in July and August were upwardly revised to 166,000 jobs and 168,000 jobs, respectively, reflecting the addition of 45,000 more jobs than previously reported.

The Labor Department also said the unemployment rate fell to 3.5 percent in September from 3.7 percent in August. Economists had expected to unemployment rate to remain unchanged.

The unexpected drop in the unemployment rate came as a 391,000-person jump in the household survey measure of employment more than offset an 117,000-person increase in the size of the labor force.

After seeing substantial volatility early in the session, stocks moved mostly higher over the course of the trading day on Thursday. With the upward move, the major averages partly offset the steep losses posted in the two previous sessions.

The major averages all closed firmly in positive territory, with the tech-heavy Nasdaq outperforming its counterparts. While the Nasdaq surged up 87.02 points or 1.1 percent to 7,872.26, the S&P 500 advanced 23.02 points or 0.8 percent to 2,910.63 and the Dow rose 122.42 points or 0.5 percent to 26,201.04.

The strength that emerged on Wall Street was partly due to bargain hunting, with traders picking up stocks at reduced levels following recent weakness.

The Nasdaq hit a two-month intraday low before rebounding, while the Dow and the S&P 500 fell to their lowest intraday levels in over a month.

Confidence the Federal Reserve will continue to cut interest rates also contributed to the turnaround, as traders digested a report from the Institute for Supply Management showing U.S. service growth slowed by more than expected in the month of September.

The ISM said its non-manufacturing index dropped to 52.6 in September after climbing to 56.4 in August. While a reading above 50 still indicates service sector growth, the index has been expected to show a more modest dip to 55.0.

With the much bigger than expected decrease, the non-manufacturing slumped to its lowest level since hitting 51.8 in August of 2016.

"The respondents are mostly concerned about tariffs, labor resources and the direction of the economy," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.

The report initially dragged stocks lower, as the data reinforced the economic worries raised by the weak manufacturing and private sector jobs data released earlier this week.

However, traders eventually looked at the data in a positive light, as it could emphasize to the Fed the need for additional stimulus.

"The latest developments should add a sense of urgency to talks seeking a resolution to the US-China trade dispute and will keep the pressure on the Fed to ease monetary policy further," said ING Chief International Economist James Knightley.

He added, "We continue to look for a December rate cut and a further move in 1Q20, but the risks are increasingly skewed towards more aggressive action."

Oil service stocks moved sharply higher over the course of the trading session, driving the Philadelphia Oil Service Index up by 2.1 percent. The index rebounded after hitting its lowest intraday level in a month.

The rebound by oil service stocks came as traders went bargain hunting despite a continued decrease by the price of crude oil.

Bargain hunting also contributed to significant strength among biotechnology stocks, with the NYSE Arca Biotechnology Index surging up by 1.9 percent after ending the previous session at a nine-month closing low.

Semiconductor and software stocks also moved notably higher on the day, contributing to the advance by the tech-heavy Nasdaq.

Commodity, Currency Markets

Crude oil futures are climbing $0.54 to $52.99 a barrel after slipping $0.19 to $52.45 a barrel on Thursday. Meanwhile, after rising $5.90 to $1,513.80 an ounce in the previous session, gold futures are sliding $5.70 to $1,508.10 an ounce.

On the currency front, the U.S. dollar is trading at 107.03 yen versus the 106.92 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0962 compared to yesterday’s $1.0965.

Asia

Asian stock markets turned in a mixed performance on Friday, despite overnight gains on Wall Street on optimism that the U.S. Federal Reserve will continue cutting interest rates. Investors remained cautious as they awaited the release of the U.S. Labor Department's closely watched monthly jobs report for September later in the day.

Markets in China remained closed for public holidays, while Hong Kong's Hang Seng Index slumped 289.28 points or 1.1 percent to 25,821.03, with the media reporting that Hong Kong's government is set to ban wearing face masks at protests.

Meanwhile, Japanese stocks recovered after a weak start and closed higher on late bargain-hunting as investors looked ahead to the key U.S. jobs data.

The benchmark Nikkei 225 Index added 68.46 or 0.3 percent to close at 21,410.20 after touching a low of 21,276.01 in early trading. The broader Topix also closed 0.3 percent higher at 1,572.90.

Major exporters mostly rebounded despite a stronger yen. Sony rose 1 percent, while Mitsubishi Electric and Panasonic both advanced 0.4 percent. Canon edged down 0.1 percent.

In the auto sector, Honda Motor added 0.5 percent and Toyota Motor rose 0.2 percent. Market heavyweight SoftBank edged up 0.1 percent, while Fast Retailing dipped 0.6 percent.

Tokio Marine said it would acquire U.S. peer Pure Group for $3.1 billion as part of its efforts to diversify its insurance portfolio. The Japanese insurance provider's shares rose 0.2 percent.

The Australian markets rebounded from the previous session's losses to close higher but still closed the week down 3 percent. Investors remained cautious as they looked ahead to the release of U.S. jobs data.

The benchmark S&P/ASX 200 Index rose 24.10 points or 0.4 percent to finish at 6,517.10, after touching a high of 6,532.70 earlier. The broader All Ordinaries Index added 25.20 points or 0.4 percent to close at 6,636.90.

Drugmaker CSL gained 3.2 percent after Morgan Stanley upgraded the company. Among the major miners, Fortescue Metals rose 2.1 percent, while BHP Billiton added 0.4 percent and Rio Tinto advanced 0.5 percent.

The big four banks mostly closed lower. ANZ Banking, Westpac and National Australia Bank declined in a range of 0.3 percent to 0.5 percent, while Commonwealth Bank rose 0.3 percent.

The Australian Competition and Consumer Commission, or ACCC, is reportedly pushing ahead with a planned inquiry that will look at the barriers to entry for new players to compete with the big four banks.

In economic news, Australia's retail sales rose 0.4 percent in August, reflecting the fastest growth in four months. However, the pace of growth was slightly slower than the expected 0.5 percent.

South Korean shares closed lower in a choppy session, with foreign investors resorting to a selling spree. The benchmark Korea Composite Stock Price Index, or KOSPI, fell 11.22 points or 0.6 percent to close at 2,020.69.

Europe

European stocks are mostly higher on Friday as hopes global central banks will provide more stimulus helps investors shrug off worries about a global economic slowdown. The markets have seen some further upside following the release of the U.S. jobs report.

While the German DAX Index has risen by 0.3 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index are both up by 0.5 percent.

London Stock Exchange Group shares have rallied on reports that some of the bourse operator's shareholders told Hong Kong Exchanges and Clearing to increase its takeover offer by 20 percent.

On the other hand, Allianz shares have moved to the downside. According to reports, the German company's property arm is buying residential Japan assets worth up to 1.1 billion euros from Blackstone funds.

Wirecard has also fallen after a report in the Financial Times said an independent investigation of its coverage of Wirecard had found no evidence that its reporters had colluded with speculators.

In economic news, Germany's construction PMI reading for the month of September came in at 50.1 compared to a reading of 46.3 in August.

U.K. car sales declined in the first nine months of 2019 as Brexit uncertainty weighed on consumers' big ticket purchases, data released by the Society of Motor Manufacturers and Traders, or SMMT, showed.

Survey results from the British Chambers of Commerce showed the U.K. economic conditions weakened in the third quarter reflecting a marked deterioration in manufacturing sector activity.

U.S. Economic Reports

A closely watched report released by the Labor Department on Friday showed U.S. employment increased by less than expected in the month of September, although the report also showed upward revisions to job growth in the two previous months.

The report said non-farm payroll employment rose by 136,000 jobs in September compared to economist estimates for an increase of about 145,000 jobs.

Meanwhile, the increases in employment in July and August were upwardly revised to 166,000 jobs and 168,000 jobs, respectively, reflecting the addition of 45,000 more jobs than previously reported.

The Labor Department also said the unemployment rate fell to 3.5 percent in September from 3.7 percent in August. Economists had expected to unemployment rate to remain unchanged.

The unexpected drop in the unemployment rate came as a 391,000-person jump in the household survey measure of employment more than offset an 117,000-person increase in the size of the labor force.

A separate report from the Commerce Department showed the U.S. trade deficit widened by more than anticipated in the month of August.

The report said the trade deficit widened to $54.9 billion in August from $54.0 billion in July. Economists had expected the trade deficit to widen to $54.5 billion.

The wider trade deficit came as the value of imports climbed by 0.5 percent to $262.8 billion, while the value of exports rose by 0.2 percent to $207.9 billion.

Atlanta Federal Reserve President Raphael Bostic is due to speak on the economy in a fireside chat at the 40th Annual Tulane Business Forum in New Orleans, Louisiana, at 10:25 am ET.

At 2 pm ET, Fed Chairman Jerome Powell is scheduled to give opening remarks at the “Fed Listens: Perspectives on Maximum Employment and Price Stability” event in Washington, D.C.

Fed Governor Lael Brainard is due to moderate a panel on “Gauging Maximum Employment in a Changing Labor Market” at the “Fed Listens” event at 2:15 pm ET.

At 4 pm ET, Fed Vice Chairman for Supervision Randal Quarles to is scheduled moderate a panel on “The Importance of Price Stability and Low Inflation in Today's Economy” at the “Fed Listens” event.

Stocks In Focus

Shares of Snap Inc. (SNAP) are likely to see initial strength after Morgan Stanley upgraded its rating on the Snapchat parent to Equal-Weight from Underweight.

Apple (AAPL) may also benefit from a report from Japan’s Nikkei news service indicating the tech giant is increasing productions of its iPhone 11 models by about 10 percent.

On the other hand, shares of HP Inc. (HPQ) are moving significantly lower in pre-market trading after the computer and printer maker announced a restructuring plan that includes cutting up to 16 percent of its workforce.

Warehouse retailer Costco (COST) may also move to the downside after reporting fiscal fourth quarter earnings that beat estimates but on weaker than expected sales.
Follow RTT
PreMarket Movers
Company
Symbol
Name
Up
Down
News





>