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Beyond the Numbers

Weekly Jobless Claims Data Leads To Rebound By Stock Futures
8/6/2020 8:59 AM

The major U.S. index futures have rebounded after moving to the downside earlier this morning and are currently pointing to a slightly higher opening on Thursday

The turnaround by the futures came after the Labor Department released a report showing first-time claims for U.S. unemployment benefits pulled back by much more than expected in the week ended August 1st.

The report said initial jobless claims tumbled to 1.186 million, a decrease of 249,000 from the previous week’s revised level of 1.435 million.

Economists had expected jobless claims to edge down to 1.415 million from the 1.434 million originally reported for the previous week.

The notable drop in jobless claims comes following two consecutive weekly increases, which raised concerns the resurgence in coronavirus claims would stall the economic recovery.

The Labor Department said the less volatile four-week moving average also fell to 1,337,750, a decrease of 31,000 from the previous week’s revised average of 1,368,750.

On Friday, the Labor Department is scheduled to release its more closely watched report on the employment situation in the month of July.

Economists currently expected employment to jump by about 1.6 million jobs in July after spiking by 4.8 million jobs in June. The unemployment rate is expected to dip to 10.5 percent from 11.1 percent.

Stocks moved mostly higher during trading on Wednesday, with the Dow showing a particularly strong upward move on the day. The Dow jumped to its best closing level in nearly two months, while the Nasdaq reached another new record closing high.

The Dow reached a new high for the session in the final minutes of trading before closing up 373.05 points or 1.4 percent at 27,201.52. The Nasdaq climbed 57.23 points or 0.5 percent to 10,998.40 and the S&P 500 advanced 21.26 points or 0.6 percent to a five-month closing high of 3,327.77.

The notable advance by the Dow was partly due to a sharp increase by shares of Disney (DIS), with the entertainment giant spiking by 8.9 percent.

After the close of trading on Tuesday, Disney reported an unexpected adjusted fiscal third quarter profit despite weaker than expected revenues.

The continued strength in the broader markets reflected optimism that lawmakers will eventually reach an agreement on a new coronavirus relief bill.

Democratic leaders said they continue to make progress toward an agreement after meeting with Trump administration officials on Tuesday.

"We're making progress," said Senate Minority Leader Chuck Schumer, D-N.Y. "We really went down issue by issue by issue, slogging through them,"

"They made some concessions, which we appreciated. We made some concessions, which they appreciated," he added. "We're still far away on a lot of the important issues, but we're continuing to go at it."

The comments from Schumer came after Senate Majority Leader Mitch McConnell, R-Ken., indicated he would support any agreement between Democrats and the White House.

Adding to the positive sentiment, a report from the Institute for Supply Management showed an unexpected acceleration in the pace of growth in service sector activity in the month of July.

The ISM said its non-manufacturing index inched up to 58.1 in July after spiking to 57.1 in June, with a reading above 50 indicating growth in service sector activity. Economists had expected the index to drop to 55.0.

Meanwhile, traders largely shrugged off a report from payroll processor ADP showing a substantial slowdown in private sector job growth in the month of July.

ADP said private sector employment rose by 167,000 jobs in July after soaring by an upwardly revised 4.314 million jobs in June.

Economists had expected employment to surge up by another 1.5 million jobs compared to the 2.369 million job spike originally reported for the previous month.

Airline stocks moved sharply higher late in the session amid news sixteen Republican Senators have expressed support for providing another $25 billion in federal aid to protect airline industry jobs.

Reflecting the late-day strength that emerged in the airline sector, the NYSE Arca Airline Index surged up by 3.4 percent.

Substantial strength was also visible among oil service stocks, as reflected by the 3.7 percent spike by the Philadelphia Oil Service Index. The index ended the session at a nearly two-month closing high.

The rally by oil service stocks came as the price of crude oil increased following the release of a report showing a much bigger than expected weekly drop in crude oil inventories.

Steel stocks also saw considerable strength on the day, driving the NYSE Arca Steel Index up by 3.1 percent to its best closing level in nearly two months.

Natural gas, financial, and chemical stocks also turned in strong performances, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are inching up $0.08 to $42.27 a barrel after climbing $0.49 to $42.19 a barrel on Wednesday. Meanwhile, after soaring $28.30 to a new record closing high of $1,049.30 an ounce in the previous session, gold futures are jumping $19.60 to $2,068.90 an ounce.

On the currency front, the U.S. dollar is trading at 105.56 yen versus the 105.60 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1847 compared to yesterday’s $1.1863.

Asia

Asian stocks finished mostly higher on Thursday, although underlying sentiment remained cautious amid concerns about the economic outlook as the number of Covid-19 cases continues to rise.

China's Shanghai Composite Index rose 8.90 points, or 0.3 percent, to 3,386.46 on hopes for an economic recovery and some encouraging news regarding coronavirus vaccines. Hong Kong's Hang Seng Index declined 171.96 points, or 0.7 percent, to 24,930.58.

Japanese shares ended lower as downbeat earnings and forecasts due to the Covid-19 pandemic dampened investor sentiment. The Nikkei 225 Index dropped 96.70 points, or 0.4 percent, to 22,418.15, while the broader Topix closed 0.3 percent lower at 1,549.88, dragged down by technology and consumer staple stocks.

Honda Motor slumped 6.3 percent after the carmaker posted its worst quarterly operating loss since the March 2009 quarter and forecast a 68 percent decrease in annual operating profit. Toyota Motor bucked the weak trend to end 2.3 percent higher as it unexpectedly avoided a loss last quarter.

Australian markets finished modestly higher as higher commodity prices helped lift miners and energy companies. The benchmark S&P/ASX 200 Index climbed 40.90 points, or 0.7 percent, to 6,042.20, while the All Ordinaries Index ended up 44.40 points, or 0.7 percent, at 6,180.30.

BHP surged 4.9 percent and Rio Tinto added 1.5 percent as iron ore futures extended gains amid more signs of improving downstream steel demand in China.

Energy stocks such as Woodside Petroleum, Oil Search and Santos jumped 2-4 percent after oil prices hit a five-month high. Banks ANZ, NAB and Westpac rose about 1 percent, while healthcare stocks ended broadly lower.

Qantas Airways rallied 2.2 percent after Australia's Deputy Prime Minister Michael McCormack said the government will continue to look at what further support can be provided to the aviation sector.

Seoul stocks rose sharply to close at a near two-year high on hopes U.S. lawmakers will soon reach a deal on a new stimulus package. The benchmark Kospi jumped 30.75 points, or 1.3 percent, to 2,342.61.

South Korea posted a current account surplus of $6.88 billion in June, the Bank of Korea said today, up from $2.29 billion in May. The goods account surplus narrowed to $5.87 billion, compared to $6.27 billion in June 2019.

Europe

European stocks have come under pressure on Thursday after the Bank of England held interest rates steady and maintained its existing level of asset purchases, as widely expected, but forecast a slower post-pandemic economic rebound in the U.K.

There is some respite on the data front as official data showed that German factory orders grew more than expected in June, driven by both domestic and foreign demand.

Orders advanced 27.9 percent on a monthly basis in June, faster than the 10.4 percent increase seen in May. Economists had forecast a 10.1 percent rise for June.

While the U.K.’s FTSE 100 Index has slumped by 1.7 percent, the French CAC 40 Index is down by 1 percent and the German DAX Index is down by 0.6 percent.

Glencore shares have slumped after the mining and commodity giant reported a net loss of $2.6 billion for the first half of the year compared with a $226 million profit a year earlier.

Media company ITV has also moved to the downside after it reported a 17 percent drop in revenue for the first half of 2020.

Insurer AXA has also tumbled after it booked a 1.5 billion-euro ($1.8 billion) charge for claims related to Covid-19 in the first half and dropped its 2020 earnings target.

Credit Agricole has also fallen. France's second-biggest listed bank reported a 22 percent drop in quarterly profit after setting aside more than expected to cover souring loans due to the Covid-19 crisis.

Lufthansa shares has also declined after the airline said it does not expect air travel demand to return to pre-crisis levels before 2024.

Biopharmaceutical company MorphoSys has also moved sharply lower after posting a wider loss in the second quarter.

On the other hand, Phoenix Group Holdings has rallied. The life and pensions consolidator said the recent acquisition of ReAssure from SwissRe will substantially boost cash coming into the group.

Adidas has also advanced after the sportswear firm swung to a loss in the second quarter but said it expected to bounce back to profitability in the third quarter.

Engineering company Siemens has also shown a strong move to the upside after it beat forecasts to post an 8 percent rise in third quarter profit.

U.S. Economic Reports

Following two straight weekly increases in first-time claims for U.S. unemployment benefits, the Labor Department released a report on Thursday showing initial jobless claims pulled back by much more than expected in the week ended August 1st.

The report said initial jobless claims tumbled to 1.186 million, a decrease of 249,000 from the previous week’s revised level of 1.435 million.

Economists had expected jobless claims to edge down to 1.415 million from the 1.434 million originally reported for the previous week.

At 10 am ET, Dallas Federal Reserve President Robert Kaplan is scheduled to speak at an Official Monetary and Financial Institutions Forum event.

Stocks In Focus

Shares of Roku (ROKU) are seeing significant pre-market weakness after the streaming video device maker reported better than expected second quarter results but noted the short-term outlook is both variable and uncertain.

Event promoter Live Nation (LYV) may also move to the downside after reporting a wider than expected second quarter loss on revenues that came in below analyst estimates.

On the other hand, shares of Bausch Health (BHC) are moving sharply higher in pre-market trading after the pharmaceutical company announced plans to spin off its eye health business into an independent publicly traded entity.

Media company ViacomCBS (VIAC) is also likely to see initial strength after reporting second quarter results that exceeded analyst estimates on both the top and bottom lines.
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