September S&P 500 futures (ESU23) are trending down -0.05% this morning as market participants looked ahead to a key U.S. nonfarm payrolls report that might provide further clues on the trajectory of interest rates.
In Thursday’s trading session, Wall Street’s main indexes closed sharply lower as strong private hiring data heightened bets the Fed will keep interest rates higher for longer to cool the economy and inflation. Energy stocks were the biggest drag on the market. Homebuilder stocks also lost ground on fears about demand as mortgage rates reached their highest level of the year, with DR Horton Inc (DHI) and Lennar Corporation (LEN) plunging over -3%. In addition, bank stocks were under pressure. Citigroup Inc (C) and Morgan Stanley (MS) slid about -3%.
Economic data on Thursday showed that U.S. ADP Nonfarm Employment Change surged by +497K in June, stronger than expectations of +228K, underscoring the continued resilience of the labor market. At the same time, U.S. May JOLTs Job Openings stood at 9.824M, weaker than expectations of 9.935M. Also, weekly initial jobless claims rose +12K to a seasonally adjusted 248K last week, slightly higher than the expected figure of 245K. In addition, U.S. ISM services PMI rose to a 4-month high of 53.9 in June, stronger than expectations of 51.0.
“We don’t see any softening in the labor market. The Fed doesn’t have to worry about the jobs market. When you look at their mandate, they have no reason not to keep hiking and to keep hiking for a while,” said Brad McMillan, a chief investment officer for Commonwealth Financial Network.
Dallas Fed President Lorie Logan expressed her apprehensions about persistently high inflation and stressed the necessity for further interest rate increases at an event in New York Thursday.
Meanwhile, U.S. rate futures have priced in an 89.9% probability of a 25 basis point rate increase and a 10.1% chance of no hike at the Fed’s monetary policy committee meeting later this month.
Today, all eyes are focused on U.S. Nonfarm Payrolls data in a couple of hours. Economists, on average, forecast that June Nonfarm Payrolls will stand at 225K, compared to the previous value of 339K.
Also, investors are likely to focus on U.S. Private Nonfarm Payrolls, which came in at 283K in May. Economists foresee the June figure to be 200K.
U.S. Average Hourly Earnings data will also be closely watched today. Economists expect June’s figures to be +0.3% m/m and +4.2% y/y, compared to the previous numbers of +0.3% m/m and +4.3% y/y.
U.S. Unemployment Rate will be reported today as well. Economists foresee this figure to be 3.6% in June, compared to the previous value of 3.7%.
In the bond markets, United States 10-Year rates are at 4.042%, down -0.02%.
The Euro Stoxx 50 futures are up +0.35% this morning, erasing early declines as investors cautiously await U.S. non-farm payroll numbers due later today. Gains in mining and bank stocks are leading the overall market higher. Meanwhile, investors will likely focus on a speech from ECB President Christine Lagarde, due later in the day. In corporate news, Coca-Cola Hbc Ag (CCH.LN) climbed over +3% after the company lifted its 2023 profit expectation.
U.K.’s Halifax House Price Index, Germany’s Industrial Production, and Italy’s Retail Sales data were released today.
U.K. June Halifax House Price Index has been reported at -0.1% m/m and -2.6% y/y, weaker than expectations of +0.1% m/m and -2.3% y/y.
The German May Industrial Production stood at -0.2% m/m, weaker than expectations of 0.0% m/m.
The Italian May Retail Sales came in at +0.7% m/m and +3.0% y/y, compared to expectations of +0.1% m/m and +4.2% y/y.
Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.28%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.17%.
China’s Shanghai Composite today closed lower as a series of weak economic readings over the past week dampened the outlook for the world’s second-largest economy, with investors anticipating additional stimulus measures from Beijing. Meanwhile, computer and semiconductor stocks underperformed on Friday. On the bullish side, Hong Kong shares of Alibaba Group climbed over +3% following a report that Chinese authorities were close to concluding their regulatory overhaul of Ant Group, with the fintech firm potentially facing a fine of up to $1.1 billion. In other news, during her initial public statements in Beijing, U.S. Treasury Secretary Janet Yellen said Friday she is “concerned” about China’s new export controls. Also, in her prepared remarks for a meeting with Chinese Premier Li Qiang, Janet Yellen defended American measures aimed at safeguarding national security.
Japan’s Nikkei 225 Stock Index closed lower today, tracking declines in U.S. stocks overnight as signs of a robust U.S. labor market drummed up concerns over rising interest rates. Data on Friday showed that the Japanese nominal average wages rose more than expected in May, marking the third consecutive month of accelerating wage hikes. At the same time, government data showed that Japan’s household spending experienced a year-on-year decline, indicating the third consecutive month of contraction. Meanwhile, real estate stocks led the declines on Friday. Chip-related stocks also plunged after Samsung Electronics Co Ltd flagged a sharp drop in its second-quarter earnings amid weakness in global chip demand. In other news, Eisai tumbled over -4% and was the top percentage loser on the Nikkei despite news that its Leqembi Alzheimer’s treatment won a coveted standard approval nod from the U.S. FDA. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 2.18% to 19.21.
The Japanese May Average Cash Earnings came in at +2.5% y/y, stronger than expectations of +0.7% y/y.
The Japanese May Household Spending stood at -1.1% m/m and -4.0% y/y, weaker than expectations of +0.5% m/m and -2.4% y/y.
Pre-Market U.S. Stock Movers
Levi Strauss & Co Class A (LEVI) plunged over -8% in pre-market trading after the company reported mixed Q2 results and cut its annual profit forecast.
Costco Wholesale Corp (COST) fell about -0.9% in pre-market trading after the company said U.S. comparable sales for June came in at -2.5% y/y.
KLA Corporation (KLAC) slid more than -1% in pre-market trading after KeyBanc downgraded the stock to Sector Weight from Overweight.
Newmont Goldcorp Corp (NEM) rose about +1% in pre-market trading after Barclays upgraded the stock to Overweight from Equal Weight.
JPMorgan Chase & Co (JPM) gained about +0.8% in pre-market trading after Wolfe Research upgraded the stock to Outperform from Peer Perform.
Paramount Global Class B (PARA) dropped over -3% in pre-market trading after Wolfe Research downgraded the stock to Underperform from Peer Perform.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Friday - July 7th
AZZ (AZZ), Urban One Inc (UONE).
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On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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