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Beyond the Numbers

Significant Slowdown In Job Losses May Add To Economic Optimism
6/3/2020 8:52 AM

The major U.S. index futures are pointing to a higher open on Wednesday, with stocks likely to extend the upward trend seen in recent sessions.

The markets seem likely to benefit from continued optimism about an economy recovery as businesses reopen following the coronavirus-induced shutdown.

Stocks have shown a substantial rebound from their March lows, with the tech-heavy Nasdaq climbing within striking distance of the record high set in February.

Potentially adding to the economic optimism, payroll processor ADP released a report showing the pace of private sector job losses slowed by much more than anticipated in the month of May.

ADP said private sector employment slumped by 2.76 million jobs in May after plummeting by a revised 19.557 million jobs in April.

Economists had expected employment to plunge by about 9.0 million jobs compared to 20.236 million job nosedive originally reported for the previous month.

“While the labor market is still reeling from the effects of the pandemic, job loss likely peaked in April, as many states have begun a phased reopening of businesses,” said Ahu Yildirmaz, co-head of the ADP Research Institute.

Stocks moved mostly higher over the course of the trading session on Tuesday, extending the upward move seen in the previous session. The advance lifted the Nasdaq to its best closing level since February, while the Dow and the S&P 500 reached three-month closing highs.

The major averages saw further upside going into the close, ending the session at their best levels of the day. The Dow jumped 267.63 points or 0.6 percent to 25,742.65, the Nasdaq climbed 56.33 points or 0.6 percent to 9,611.22 and the S&P 500 advanced 25.09 points or 0.8 percent to 3,080.82.

The strength on Wall Street extended a recent upward trend amid optimism about an economy recovery as businesses reopen following the coronavirus-induced shutdown.

Economists have repeatedly warned that the recovery will take time, but traders have seemingly shrugged off those concerns as stocks continue to recover from their March lows.

Traders have also largely ignored the mass protests across the country in response to the death of George Floyd at the hands of Minneapolis police officers.

The protests have turned violent in many instances, but traders appear to believe that the unrest will be curtailed before having any meaningful impact on the economy.

Energy stocks helped lead the markets higher, benefiting from a sharp increase by the price of crude oil. Crude for July delivery surged up $1.37 to $36.81 a barrel.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index soared by 4.1 percent, the NYSE Arca Oil Index spiked by 3.3 percent and the NYSE Arca Natural Gas Index shot up by 3.1 percent.

Substantial strength was also visible among steel stocks, as reflected by the 3.2 percent jump by the NYSE Arca Steel Index. The index ended the session at its best closing level in nearly three months.

Chemical, semiconductor and transportation stocks also saw considerable strength on the day, while gold stocks bucked the uptrend amid a steep drop by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are slipping $0.16 to $36.65 a barrel after jumping $1.37 to $36.81 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,720.90, down $13.10 compared to the previous session’s close of $1,734. On Tuesday, gold slumped $16.30.

On the currency front, the U.S. dollar is trading at 108.66 yen compared to the 108.68 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1189 compared to yesterday’s $1.1170.

Asia

Asian stocks posted strong gains on Wednesday amid optimism about an economic recovery and on hopes of more stimulus measures to counter the fallout from the coronavirus.

Chinese shares gave up early gains to end little changed as U.S.-China tensions offset data pointing to a recovery in the country's services sector.

The benchmark Shanghai Composite Index inched up 1.97 points, or 0.1 percent, to 2,923.37, while Hong Kong's Hang Seng Index surged up 329.68 points, or 1.4 percent, to 24,325.62.

China's service sector expanded for the first time in four months in May amid an easing of measures implemented to curb the spread of the coronavirus, survey results from IHS Markit showed.

The services Purchasing Managers' Index spiked to 55.0 in May from 44.4 in April, signaling a recovery in the sector. Moreover, the pace of expansion was the fastest since October 2010.

Japanese shares hit over three-month highs, as a rapidly weakening yen helped lift automakers. Investors also cheered data showing that services sector activity in Japan contracted at a slower rate in May.

The Nikkei 225 Index jumped 288.15 points, or 1.3 percent, to 22,613.76, its highest closing level since February 21. The broader Topix closed 0.7 percent higher at 1,599.08.

Subaru, Nissan Motor and Mazda Motor soared 6-9 percent as the yen hit a two-month low against the dollar and a four-and-a-half month low against the euro. Honda Motor advanced 2.6 percent and Toyota Motor added 2.1 percent.

Australian markets advanced for a third day on expectations of a swift economic rebound from the coronavirus pandemic.

The benchmark S&P/ASX 200 Index climbed 106.50 points, or 1.8 percent, to 5,941.60, while the broader All Ordinaries Index ended up 104.80 points, or 1.8 percent, at 6,064.90.

Woodside Petroleum, Santos and Oil Search rallied 3-5 percent as oil prices hovered near three-month highs.

Mining heavyweights BHP and Rio Tinto rose 2.6 percent and half a percent, respectively, while the big four banks surged 3-5 percent.

Gold miner Evolution slumped 5.8 percent and Newcrest gave up 2.3 percent after gold prices declined overnight.

Austal dropped 1.4 percent. The shipbuilder said it has promoted chief operating officer Patrick Gregg to the position of chief executive officer, succeeding David Singleton, who will complete his contract at the end of the year.

On the data front, Australian gross domestic product dropped a seasonally adjusted 0.3 percent sequentially in the first three months of 2020, the Australian Bureau of Statistics said. That matched expectations following the 0.5 percent quarterly gain in the three months prior.

On a yearly basis, GDP expanded 1.4 percent - again matching expectations but slowing from 2.2 percent in the previous quarter.

The total number of building permits issued in Australia dropped a seasonally adjusted 1.8 percent month-on-month in April, while the country's private sector contracted substantially in May amid ongoing measures to contain the spread of the coronavirus, separate reports showed.

Seoul stocks soared amid hopes for a global economic recovery and reduced tensions between the world's largest economies.

Sentiment was also bolstered after the government unveiled a 35.3 trillion won ($28.8 billion) supplementary budget, raising the total stimulus to 270 trillion won to counter the economic fallout from the coronavirus.

The benchmark Kospi rallied 59.81 points, or 2.9 percent, to 2,147. Market heavyweight Samsung Electronics jumped 6 percent and No. 2 chipmaker SK Hynix surged 6.5 percent.

Europe

European stocks have risen sharply on Wednesday to extend gains for a third straight session as encouraging services sector data from China and Europe helped ease growth worries.

Hopes of additional support from European policymakers also helped lift regional stocks to their highest level in almost three months.

The services Purchasing Managers' Index for China advanced to 55.0 in May from 44.4 in April, signaling a recovery in the sector. The pace of expansion was the fastest since October 2010.

Closer to home, the eurozone services purchasing managers index rose to 30.5 in May from 12 in April, above the flash reading of 28.7 and a three-month high.

The euro area jobless rate rose to 7.3 percent in April from 7.1 percent in March, Eurostat data showed. This was below economists' forecast of 8.2 percent. The number of unemployed increased by 211,000 to 11.919 million in April.

While the German DAX Index has spiked by 2.3 percent, the French CAC 40 Index is up by 2 percent and the U.K.’s FTSE 100 Index is up by 1.2 percent.

Tour operator TUI has surged higher after it agreed to a compensation package and a new delivery deal with Boeing for its 737 MAX aircraft.

Automaker Renault has also spiked after it finalized a 5 billion euro ($5.60 billion) loan with the French government.

Insurer AXA has also soared. After deciding to cut its dividend for 2019, the company said it could propose an additional fourth-quarter shareholder payment if conditions improved.

Wizz Air Holdings has also moved to the upside after the low-cost airline reported a rise in pre-tax profit for fiscal 2020.

Electric utility EDF has also advanced after cancelling its nuclear supply contracts with Total Direct Energie, Alpiq and Gazel.

German airline Deutsche Lufthansa has also moved sharply higher on restructuring news.

U.S. Economic Reports

After reporting a record drop in private sector employment in the previous month, payroll processor ADP released a report on Wednesday showing the pace of job losses slowed by much more than anticipated in the month of May.

ADP said private sector employment slumped by 2.76 million jobs in May after plummeting by a revised 19.557 million jobs in April.

Economists had expected employment to plunge by about 9.0 million jobs compared to 20.236 million job nosedive originally reported for the previous month.

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

The ISM’s non-manufacturing index is expected to climb to 44.0 in May from 41.8 in April, although a reading below 50 would indicate a continued contraction in service sector activity.

The Commerce Department is also due to release its report on factory orders in the month of April at 10 am ET. Factory orders are expected to plunge by 14.0 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended May 29th.

Crude oil inventories are expected to increase by 3.3 million barrels after jumping by 7.9 million barrels in the previous week.

Stocks In Focus

Shares of Coty (COTY) are moving significantly higher in pre-market trading after the cosmetics maker revealed in a SEC filing that it is engaged in talks with Kim Kardashian West regarding a possible collaboration with respect to certain beauty products.

Cybersecurity company CrowdStrike (CRWD) is also likely to see initial strength after reporting first quarter adjusted earnings compared to expectations for a loss. CrowdStrike also raised its full-year guidance.

On the other hand, shares of Express (EXPR) are likely to come under pressure after the appeal retailer reported a wider than expected first quarter loss on revenues that missed analyst estimates.
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