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Beyond the Numbers

Unbelievably Strong Jobs Data Likely To Spark Rally On Wall Street
6/5/2020 9:01 AM

The major U.S. index futures are currently pointing to a sharply higher opening on Friday following the release of much better than expected jobs data.

The upward momentum on Wall Street comes following the release of a report from the Labor Department claiming employment in the U.S. unexpectedly showed a substantial rebound in the month of May.

The Labor Department said non-farm payroll employment jumped by 2.51 million jobs in May after plummeting by a revised 20.69 million jobs in April.

The rebound in employment came as a shock to economists, who had expected the loss of another 8.0 million jobs following the nosedive of 20.5 million jobs originally reported for the previous month.

With the unexpected rebound in employment, the Labor Department said the unemployment rate dropped to 13.3 percent in May from 14.7 percent in April. Economists had expected the unemployment rate to surge up to 19.8 percent.

The report claimed the improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus pandemic and efforts to contain the spread of the disease.

Employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade, according to the Labor Department.

Following the strong upward move seen over the past several sessions, stocks turned in a relatively lackluster performance during trading on Thursday before eventually ending the day mixed.

While the Dow inched up 11.93 points or 0.1 percent to a three-month closing high of 26,281.82, the Nasdaq slid 67.10 points or 0.7 percent to 9,615.81 and the S&P 500 fell 10.52 points or 0.3 percent to 3,112.35.

The choppy trading on Wall Street came as traders took a breath to digest the recent strength on Wall Street, which lifted the Nasdaq-100 to a record intraday high in early trading.

Traders also seemed reluctant to make more significant moves ahead of the release of the Labor Department's closely watched monthly jobs report on Friday.

Economists currently expect employment to tumble by about 8.0 million jobs in May after plunging by 20.5 million jobs in April. The unemployment rate is expected to jump to 19.8 percent from 14.7 percent.

The Labor Department released a report this morning showing the pace of decline in first-time claims for unemployment benefits has begun to stall a bit.

The report showed initial jobless claims tumbled to 1.877 million in the week ended May 30th, a decrease of 249,000 from the previous week's revised level of 2.126 million.

However, economists had expected jobless claims to slump to 1.800 million from the 2.123 million originally reported for the previous week.

Jobless claims pulled back further off the record high of 6.867 million set in the week ended March 28th, although the number of new claims since the coronavirus lockdowns now exceeds 42.6 million.

The report also showed an unexpected increase in continuing claims, a reading on the number of people receiving ongoing unemployment assistance, which jumped by 649,000 to 21.487 million in the week ended May 23rd.

Despite the weekly increase, economists at Oxford Economics noted continuing claims remain below their peak, suggesting "a small amount of rehiring may be starting to take place."

Earlier in the day, some buying interest was generated in reaction to the European Central Bank announcing additional stimulus to deal with the economic fallout from the coronavirus pandemic.

The ECB announced that it will increase its Pandemic Emergency Purchase Programme by 600 billion euros. The bank announced plans to purchase 750 billion euros of government bonds back in March.

Interest rate-sensitive utilities stocks showed a significant move to the downside as treasury yields extended the jump seen on Wednesday.

Reflecting the weakness in the sector, the Dow Jones Utility Average slumped by 2.1 percent after ending Wednesday's trading at its best closing level in nearly three months.

Software, networking and biotechnology stocks also saw considerable weakness, weighing on the tech-heavy Nasdaq, while housing stocks also moved notably lower.

On the other hand, banking stocks extended the rally seen on Wednesday, driving the KBW Bank Index up by 4 percent to a three-month closing high.

Substantial strength was also visible among oil service stocks, as reflected by the 3.9 percent jump by the Philadelphia Oil Service Index. The strength in the sector came amid a modest increase by the price of crude oil.

Brokerage, steel, and gold stocks also turned in strong performances on the day, offsetting the weakness seen in the aforementioned sectors.

Commodity, Currency Markets

Crude oil futures are spiking $1.89 to $39.30 a barrel after inching up $0.12 to $37.41 a barrel on Thursday. Meanwhile, after jumping $22.60 to $1,727.40 an ounce in the previous session, gold futures are plummeting $39.40 to $1,688 an ounce.

On the currency front, the U.S. dollar is trading at 109.58 yen versus the 109.15 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1296 compared to yesterday’s $1.1338.

Asia

Asian stocks finished mostly higher on Friday even as caution prevailed ahead of the U.S. employment report due out later in the day.

Economists expect U.S. employment to tumble by about 8.0 million jobs in May after plunging by 20.5 million jobs in April. The unemployment rate is expected to jump to 19.8 percent, a post-World War II record, from 14.7 percent in April.

Chinese shares ended a choppy session higher, with the benchmark Shanghai Composite rising 11.55 points, or 0.40 percent, to 2,930.80. Hong Kong's Hang Seng Index rallied 404.11 points, or 1.7 percent, to 24,770.41.

Japanese shares rose for a fifth straight session, with a weaker yen and overall optimism about an economic rebound from the coronavirus pandemic helping underpin investor sentiment. The Nikkei 225 Index climbed 167.99 points, or 0.7 percent, to 22,863.73, a 3-1/2-month high. The broader Topix closed 0.5 percent higher at 1,612.48.

Export-focused automakers Honda Motor, Nissan and Mazda jumped 4-6 percent. Mitsubishi UFJ Financial Group rose 2.6 percent, Sumitomo Mitsui Financial Group advanced 2.5 percent and Dai-ichi Life Holdings surged 6.8 percent after longer-term U.S. Treasury yields jumped overnight.

Toshiba Corp. gained 3.4 percent after saying it is focusing on social infrastructure businesses that are resilient to a global economic slump driven by the coronavirus outbreak.

In economic news, the average of household spending in Japan fell 11.1 percent year-on-year in April, the Ministry of Internal Affairs and Communications said. That beat expectations for a drop of 15.4 percent following the 6.0 percent fall in March.

Australian markets recovered from an early slide to finish marginally higher, led by banks and energy companies. The benchmark S&P/ASX 200 Index edged up 6.90 points, or 0.1 percent, to 5,998.70 after climbing more than 4 percent over the past four sessions. The broader All Ordinaries Index inched up by 4.50 points, 0.1 percent, to 6,116.50.

The big four banks rose between 1.6 percent and 3.4 percent. Energy stocks such as Woodside Petroleum, Origin Energy, Santos, Beach Energy and Oil Search gained 1-2 percent.

Healthcare stocks fell, with CSL, Cochlear and ResMed losing 2-3 percent. Technology stocks such as Appen and Altium fell over 4 percent.

Kogan.com soared 8.6 percent after the online shopping trader reported a surge in sales during the months of April and May amid the Covid-19 shutdown.

Seoul stocks rose sharply on hopes for a quick economic recovery after the European Central Bank announced a bigger-than-expected expansion to the trillions of euros in stimulus. The benchmark Kospi jumped 30.69 points, or 1.4 percent, to 2,181.87.

No. 2 chipmaker SK Hynix rallied 3.1 percent, top chemical maker LG Chem surged 4 percent and leading carmaker Hyundai Motor added 2.3 percent.

Europe

European stocks are moving higher on Friday as investors cheer new stimulus efforts in Europe to deal with the economic fallout from the coronavirus pandemic.

The European Central Bank announced Thursday it will increase its Pandemic Emergency Purchase program by a further 600 billion euros ($676 billion) to support funding conditions in the real economy, especially for businesses and households. Markets were expecting a 500 billion euros increase.

While the U.K.’s FTSE 100 Index has jumped by 1.5 percent, the German DAX Index and the French CAC 40 Index are up by 2.4 percent and 2.6 percent, respectively.

Total SA, BP Plc and Royal Dutch Shell have moved notably higher after reports that OPEC+ leaders Russia and Saudi Arabia have clinched a tentative deal to extend record production curbs for another month until the end of July.

Travel-related stocks are also moving higher after reports that some European countries were keen to adopt transport corridors as soon as next month that would let British holidaymakers visit Mediterranean resorts without quarantining for 14 days on their return.

German airline Lufthansa has jumped despite news that it will be replaced by real estate company Deutsche Wohnen AG in the DAX Index.

Residential developer Taylor Wimpey has also risen. As of the week ending May 31, total order book value stood at approximately 2.78 billion pounds, up from last year's 2.52 billion pounds, the company said in a statement.

On the other hand, copper producer KAZ Minerals has moved sharply lower after issuing an update for its Baimskaya Project.

U.S. Economic Reports

A closely watched report released by the Labor Department on Friday claimed employment in the U.S. unexpectedly showed a substantial rebound in the month of May.

The Labor Department said non-farm payroll employment jumped by 2.51 million jobs in May after plummeting by a revised 20.69 million jobs in April.

The rebound in employment came as a shock to economists, who had expected the loss of another 8.0 million jobs following the nosedive of 20.5 million jobs originally reported for the previous month.

With the unexpected rebound in employment, the Labor Department said the unemployment rate dropped to 13.3 percent in May from 14.7 percent in April. Economists had expected the unemployment rate to surge up to 19.8 percent.

At 3 pm ET, the Federal Reserve is scheduled to release its report on consumer credit in the month of April. Consumer credit is expected to decrease by $14.0 billion.

Stocks In Focus

Shares of Kontoor Brands (KTB) are moving sharply higher in pre-market trading after Susquehanna Financial upgraded its rating onthe maker of Lee and Wrangler jeans to Positive from Neutral.

Home furnishings company RH (RH) is also likely to see initial strength after reporting better than expected fiscal first quarter results and saying it has experienced a strong rebound in the fiscal second quarter.

Meanwhile, shares of Slack Technologies (WORK) are likely to come under pressure after the messaging platform company reported fiscal first quarter results that exceeded analyst estimates but withdrew its full-year billings guidance.

Specialty clothing retailer Zumiez (ZUMZ) may also move to the downside after reporting a wider than expected fiscal first quarter loss on revenues that missed expectations.
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