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Beyond the Numbers

Stronger Than Expected Jobs Data May Spark Early Buying Interest
12/6/2019 8:56 AM

The major U.S. index futures are currently pointing to a higher opening on Friday following the lackluster performance seen in the previous session.

Early buying interest is likely to be generated in reaction to a closely watched Labor Department report showing much stronger than expected U.S. job growth in the month of November.

The report said non-farm payroll employment surged up by 266,000 jobs in November after climbing by an upwardly revised 156,000 jobs in October.

Economists had expected an increase of about 180,000 jobs compared to the addition of 128,000 jobs originally reported for the previous month.

The Labor Department said notable job gains occurred in healthcare and in professional and technical services, while manufacturing employment also rose as General Motors (GM) workers returned from a strike.

With the stronger than expected job growth, the unemployment rate edged down to 3.5 percent in November from 3.6 percent in October. The unemployment rate was expected to remain unchanged.

The markets may also benefit from continued optimism about a U.S.-China trade deal after U.S. President Donald Trump said trade talks are “moving along” and that the two sides are having “very major discussions.”

Following the rebound seen on Wednesday, stocks showed a lack of direction over the course of the trading day on Thursday. The major averages spent the day bouncing back and forth across the unchanged line.

Eventually, the major averages ended the day modestly higher. The Dow inched up 28.01 points or 0.1 percent to 27,677.79, the Nasdaq crept up 4.03 points or 0.1 percent to 8,570.70 and the S&P 500 rose 4.67 points or 0.2 percent to 3,117.43.

The lackluster performance on Wall Street came as traders seemed reluctant to make more significant moves ahead of the release of the Labor Department's closely watched monthly jobs report.

A day ahead of the release of the monthly jobs report, the Labor Department released a report this morning showing an unexpected decrease in first-time claims for U.S. unemployment benefits in the week ended November 30th.

The report said initial jobless claims slipped to 203,000, a decrease of 10,000 from the previous week's unrevised level of 213,000. The drop came as a surprise to economists, who had expected jobless claims to inch up to 215,000.

With the unexpected decrease, jobless claims fell to their lowest level since hitting 193,000 in the week ended April 13th.

A separate report from the Commerce Department showed the U.S. trade deficit narrowed in the month of October amid a notable decrease in the value of imports.

The Commerce Department said the trade deficit narrowed to $47.2 billion in October from a revised $51.1 billion in September.

Economists had expected the trade deficit to narrow to $48.7 billion from the $52.5 billion originally reported for the previous month.

The narrower trade deficit came as the value of imports tumbled by 1.7 percent to $254.3 billion, while the value of exports edged down by 0.2 percent to $207.1 billion.

News House Democrats are moving forward with drafting articles of impeachment against President Donald Trump also contributed to the choppy trading along with a Wall Street Journal report indicating the U.S. and China are at odds over the size of Chinese agricultural purchases.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Housing stocks showed a notable move to the upside, however, with the Philadelphia Housing Sector Index climbing by 1 percent.

Hovnanian Enterprises (HOV) moved sharply higher after the homebuilder reported strong fiscal fourth quarter growth in revenues and home deliveries.

Gold and computer hardware stocks also saw some strength on the day, while energy and retail stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are sliding $0.57 to $57.86 a barrel after closing unchanged at $58.43 a barrel on Thursday. Meanwhile, after rising $2.90 to $1,483.10 an ounce in the previous session, gold futures are slumping $9.50 to $1,473.60 an ounce.

On the currency front, the U.S. dollar is trading at 108.83 yen versus the 108.76 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1083 compared to yesterday’s $1.1104.

Asia

Asian stocks ended mostly higher on Friday amid optimism the U.S. and China will be able to arrive at a phase one trade agreement prior to December 15th, when a new round of U.S. tariffs on Chinese imports will take effect.

The focus shifted to U.S. jobs data that will be out later in the day after recent data sent mixed signals about the state of the world's largest economy.

Chinese shares rose and logged their biggest weekly gain in nearly two months, with signs of economic recovery and hopes of a trade deal with the United States helping underpin investor sentiment.

The benchmark Shanghai Composite Index rose 0.4 percent to 2,912.01 and ended the week up by 1.4 percent. Hong Kong's Hang Seng Index surged up by 1.1 percent to 26,498.37.

Japanese shares rose despite the yen benefiting from reviving safe-haven demand on the back of uncertainty over a potential phase one U.S.-China trade deal.

The Nikkei 225 Index gained 0.2 percent to finish at 23,354.40, while the broader Topix index closed 0.1 percent higher at 1,713.36. TDK, Kawasaki Kisen Kaisha, Kobe Steel, Advantest and Eisai surged 3-6 percent.

Japan household spending declined notably in October after the government implemented a sales tax hike on October 1, a government report showed.

Household spending decreased 5.1 percent annually in October, in contrast to a 9.5 percent increase in September. This was the biggest fall since March 2016. Economists had forecast a moderate 3.5 percent fall for October.

Seoul stocks rose to snap a three-day losing streak as foreign investors resumed buying on renewed hopes for a trade deal between the United States and China within this year. The benchmark Kospi jumped 1 percent to 2,081.85.

Australian markets advanced to end a volatile week on a positive note. The benchmark S&P/ASX 200 Index rose 0.4 percent to 6,707.00, while the broader All Ordinaries Index gained 0.3 percent to end at 6,813.50.

Banks ended on a mixed note, while mining heavyweights BHP and Rio Tinto closed largely unchanged. Boral slumped 6.3 percent after the construction materials supplier revealed financial irregularities in its North American windows division.

Gold miner Northern Star Resources gained half a percent after it completed its takeover of Echo Resources.

Health insurer NIB Holdings climbed 2.1 percent after it formed a A$20 million joint venture with U.S.-based insurance giant Cigna to create a data science and services company.

Europe

European stocks have risen on Friday after U.S. President Donald Trump said trade talks with China are "moving along" and that the two sides are having “very major discussions.” The markets have seen further upside following the release of the much better than expected U.S. jobs data.

Closer to home, investors have shrugged off data from Germany showing that industrial production in Europe's largest economy unexpectedly declined in October.

Industrial production decreased 1.7 percent on a monthly basis in October, bigger than the revised 0.6 percent fall logged in September. Economists had forecast output to recover 0.1 percent.

Elsewhere, U.K. house prices increased 2.1 percent on a yearly basis in the three months to November, following a 0.9 percent rise in three months to October, data from the Lloyds Bank subsidiary Halifax and IHS Markit showed. Economists had forecast an annual growth of 1 percent.

While the U.K.’s FTSE 100 Index has jumped by 1 percent, the French CAC 40 Index is up by 0.7 percent and the German DAX Index is up by 0.5 percent.

The British pound has slipped from a seven-month high hit Thursday on expectations that next week's election will give the Conservative Party the parliamentary majority it needs to deliver Brexit.

Phoenix Group Holdings shares have risen after the company agreed to buy Swiss Re AG's U.K. insurance unit ReAssure Group Plc.

Primark-owner Associated British Foods has also moved to the upside. The company said it expects progress, on both a reported and an IFRS 16 adjusted basis, in adjusted earnings per share for fiscal 2020.

Meanwhile, chemical group Wacker Chemie is fluctuating after the company said it expects a negative net result for 2019 of around 750 million euros, compared to previous guidance of slightly positive net income.

Carl Zeiss Meditec shares have slumped after the medical technology company said it expects an EBIT margin of 17-19 percent for fiscal year 2020.

U.S. Economic Reports

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

The report said non-farm payroll employment surged up by 266,000 jobs in November after climbing by an upwardly revised 156,000 jobs in October.

Economists had expected an increase of about 180,000 jobs compared to the addition of 128,000 jobs originally reported for the previous month.

With the stronger than expected job growth, the unemployment rate edged down to 3.5 percent in November from 3.6 percent in October. The unemployment rate was expected to remain unchanged.

At 10 am ET, the University of Michigan is scheduled to release its preliminary reading on consumer sentiment in the month of December. The consumer sentiment index is expected to slip to 96.5 in December after rising to 96.8 in November.

The Commerce Department is also due to release its report on wholesale inventories in the month of October at 10 am ET. Wholesale inventories are expected to rise by 0.2 percent.

At 3 pm ET, the Federal Reserve is scheduled to release its report on consumer credit in the month of October. Economists expect consumer credit to increase by $16.0 billion.

Stocks In Focus

Shares of Ulta Beauty (ULTA) are moving significantly higher in pre-market trading after the cosmetics retailer reported better than expected fiscal third quarter earnings.

Discount retailer Big Lots (BIG) is also likely to see initial strength after reporting a narrower than expected fiscal third quarter loss on revenues that came in slightly above analyst estimates.

On the other hand, shares of Zoom Video (ZM) may come under pressure after the remote conferencing services provider reported fiscal third quarter earnings that beat estimates but a slowdown in the pace of revenue growth.

Fashion company Tapestry (TPR) may also move to the downside after Evercore downgraded its rating on the company’s stocks to In Line from Outperform.
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