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Beyond the Numbers

Easing Recession Concerns May Lead To Strength On Wall Street
8/8/2022 8:47 AM

The major U.S. index futures are currently pointing to a higher open on Monday, with stocks likely to move to the upside after closing mixed for two consecutive sessions.

Easing concerns about a potential recession may contribute to early buying interest on Wall Street following last week’s much stronger than expected jobs data.

The strong data has also increased the likelihood of another 75 basis point interest rate hike by the Federal Reserve, however, potentially keeping a lid on the early gains.

Traders may also be reluctant to make significant ahead of the release of closely watched U.S. inflation data in the coming days.

Economists have suggested that the inflation data could have an even greater impact on Fed officials’ thinking than the jobs data.

After moving sharply lower early in the session, stocks saw substantial volatility over the course of the trading day on Friday. The major averages showed wild swings as the day progressed before eventually closing mixed for the second straight day.

While the Dow rose 76.65 points or 0.2 percent to 32,803.47 after tumbling by more than 200 points in early trading, the Nasdaq fell 63.03 points or 0.5 percent to 12,657.55 and the S&P 500 dipped 6.75 points or 0.2 percent to 4,145.19.

For the week, the Nasdaq surged by 2.2 percent and the S&P 500 climbed by 0.4 percent, while the narrower Dow edged down by 0.1 percent.

The volatility on Wall Street came as traders reacted to the Labor Department's closely watched monthly jobs report.

The report showed employment in the U.S. jumped by much more than expected in the month of July, leading to concerns about the outlook for interest rates.

The report showed non-farm payroll employment spiked by 528,000 jobs in July after surging by an upwardly revised 398,000 jobs in June.

Economists had expected employment to climb by about 250,000 jobs compared to the addition of 372,000 jobs originally reported for the previous month.

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

While the data paints a positive picture of the labor market, the report may also give the Federal Reserve confidence they can continue aggressively raising interest rates without causing a recession.

"The unexpected acceleration in non-farm payroll growth in July, together with the further decline in the unemployment rate and the renewed pick-up in wage pressure, make a mockery of claims that the economy is on the brink of recession," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "This raises the odds of another 75bp rate hike in September, although the outcome depends more on the evolution of the next couple of CPI reports."

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

Oil-related stocks saw significant strength, however, regaining some ground following recent weakness. The rebound came as crude oil regained ground after falling to the lowest levels since Russia's invasion of Ukraine.

Reflecting the strength in the sector, the NYSE Arca Oil Index and the Philadelphia Oil Service Index surged by 2.2 percent and 2.1 percent, respectively.

Considerable strength was also visible among steel stocks, as reflected by the 2 jump by the NYSE Arca Steel Index.

Natural gas and banking stocks also saw notable strength on the day, while tobacco and semiconductor stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are sliding $0.94 to $88.07 a barrel after climbing $0.47 to $89.01 a barrel last Friday. Meanwhile, after falling $15.70 to $1,791.20 an ounce in the previous session, gold futures are rising $11.50 to $1,802.70 an ounce.

On the currency front, the U.S. dollar is trading at 134.88 yen versus the 135.01 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0187 compared to last Friday’s $1.0183.

Asia

Asian stocks ended mixed on Monday a stronger-than-expected U.S. jobs report rekindled concerns over aggressive rate hikes by the Federal Reserve and Chinese imports data disappointed, highlighting weak domestic demand.

U.S.-China tensions over Taiwan also remained on investors' radar, with China announcing fresh military drills in the seas and airspace around Taiwan.

Mainland Chinese stocks eked out modest gains after data showed exports grew 18 percent in July, sending the trade surplus to a record high and easing concerns over waning global demand. However, imports remained sluggish with a 2.3 percent increase year-on-year.

The benchmark Shanghai Composite Index edged up 0.3percent to 3,236.93, while Hong Kong's Hang Seng Index fell 0.8 percent to 20,045.77, hit by selling in the technology sector on expectations for more aggressive policy tightening by the Fed. Baidu, Tencent Holdings and Alibaba Group Holding lost 2-4 percent.

Japanese shares ended slightly higher at a more than four-month high on optimism about domestic corporate outlook. The Nikkei 225 Index inched up 0.3 percent to 28,249.24, marking its highest close since March 29. The broader Topix closed 0.2 percent higher at 1,951.41.

Bandai Namco Holdings soared 4.1 percent after the game maker reported a whopping 55 percent year-on-year spike in video game sales for its fiscal first quarter.

Camera and office equipment maker Canon climbed 4.6 percent after announcing its second share buyback this year. Automaker Suzuki Motor jumped 10.4 percent after backing its full-year outlook.

Seoul shares ended little changed after a choppy session on U.S. rate hike woes. Automakers and steelmakers topped the gainers list, offsetting losses in the technology and shipping sectors.

Australian markets finished marginally higher, with mining and energy stocks pacing the gainers ahead of a key U.S. inflation reading due on Wednesday.

OZ Minerals shares surged 35.3 percent after it rejected a A$8.34 billion ($5.78 billion) takeover bid from BHP Group.

Europe

European stocks have moved mostly higher on Monday, with economy-sensitive stocks leading advances following some positive data from China and the United States.

Sentiment was also underpinned after a survey showed investor morale in the euro zone edged up slightly in August from the previous month. Sentix's index for the 19-country currency block rose to -25.2 points from -26.4 in July.

"The economic situation in the Eurozone remains difficult. A recession is still very likely amid weak consumer confidence, inflation and high energy prices," Sentix noted.

After the July surge in U.S. non-farm payroll employment raised the odds of a third 75 basis point rate hike in September, investors now look ahead to the release of U.S. inflation data and U.K. GDP data this week for further direction.

While the French CAC 40 Index has jumped by 1.1 percent, the German DAX Index is up by 0.8 percent and the U.K.’s FTSE 100 Index is up by 0.5 percent.

Joules has moved sharply higher after saying that it is in discussion with larger rival Next for the latter to take a strategic stake in the struggling British fashion chain.

French utility Veolia has also gained after it confirmed a deal to sell Suez's U.K. waste business to Australia's Macquarie Group for around 2.4 billion euros ($2.4 billion).

German engineering-services company Bertrandt has also moved to the upside after reporting higher net profit and revenue in the first nine months of fiscal year.

On the other hand, telecommunications provider Q.beyond has moved lower after reporting a loss in the second quarter.

Page Group has also slumped in London after the recruiter noted a "slight slowing in time to hire" in July across some of its markets.

Siemens Energy, the supplier of equipment to the power industry, has also moved to the downside after widening its quarterly loss.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today.

Stocks In Focus

Shares of Signify Health (SGFY) are moving sharply higher in pre-market trading after a report from the Wall Street Journal said CVS Health (CVS) is seeking to the home health services company.

Solar power company First Solar (FSLR) is also seeing significant pre-market strength after Guggenheim and J.P. Morgan Securities upgraded their ratings on the company’s stock to Buy and Overweight, respectively.

Shares of Barrick Gold (GOLD) may also move to the upside after the mining company reported second quarter results that exceeded analyst estimates.

Meanwhile, shares of Palantir (PLTR) are likely to come under pressure after the data analytics company reported an unexpected second quarter loss and provided disappointing guidance.
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