To cap off a week when economic data painted a mixed picture of the US economy, a widely expected job market report came in weaker than expected.
Government data on the non-farm payroll showed that the world’s largest economy created 130,000 jobs in August, well below aBriefing.com consensus of expecting 171,000 jobs to be added. The previous reading of 164,000 jobs added in July has been revised down to 159,000.
The disappointing numbers come after US manufacturing data earlier in the week signaled the sector was in contraction, but other numbers pointed to a stronger-than-expected private sector job market, better factory orders than expected and the strength of the service sector.
A silver lining for the jobs report and manufacturing data could be a stronger argument for the Fed to cut interest rates, but stronger data supports the opposite argument. After government employment data this morning, the futures market’s chances of a Fed rate cut haven’t changed much. The futures market showed a 93.5% chance of a 25 basis point decline later in the month, compared to a 91.2% chance before the jobs report. The rest of the probability was that the Fed would hold rates.
Stock index futures reduced their gains after the jobs data, but investors seemed to retain some of their optimism after the news that China decided to stimulate its economy by reducing the amount of liquidity it banks must keep as reserves. The Chinese central bank’s decision comes amid slowing economic growth in the world’s second-largest economy as the trade war with the United States drags on.
Later today, Fed Chairman Jerome Powell is expected to speak and investors will likely be tuned in for any comments on monetary policy.
Business news, data helps allay fear
Sometimes, before some much anticipated data, the market can enter a lull where traders and investors are unwilling to take particularly large positions ahead of the numbers. This was not the case on Thursday, as trade news and economic data pushed the market up sharply.
The market has had a boost with the news that the United States and China have agreed to high-level trade talks next month. The world’s two largest economies will also hold preparatory consultations in the middle of this month.
Additionally, July payroll data from ADP and Moody’s Analytics showed private companies created 195,000 jobs, well above the 165,000 expected in a Briefing.com consensus. Strong private sector data helped boost the market ahead of today’s job numbers, as ADP numbers are seen as a less comprehensive precursor to government numbers, even though they are not. always in sync, as evidenced by today’s lower-than-expected reading from the Ministry of Labor.
Other economic data Thursday also encouraged the market. A report on US factory orders on Thursday showed a 1.4% increase in July, ahead of a consensus of 1% on Briefing.com. And the Institute for Supply Management’s non-manufacturing index showed that the service sector in August posted a 56.4% better-than-expected rate, reflecting larger-than-expected expansion in the sector.
Switch to activated risk
The bullish data helped allay some concerns about a recent U.S. recession as the 10-year Treasury yield fell below that of the 2-year Treasury, an indicator that preceded recessions in the pass. But on Thursday, that part of the yield curve was more normal – with a slight positive slope – and, encouragingly, the 30-year Treasury yield was above 2%. Movements in the yield curve seem to indicate less fear in the market about the economy.
The optimism that did so much to boost stocks on Thursday was part of a heightened investor appetite for riskier assets. This meant that they felt less need for the relative safety of US government debt, and as they sold Treasuries, they pushed up yields.
As investors and traders sold their T-bills, they also dumped gold, another traditional safe haven with T-bills (see Figure 1 below). The risky mood amid the news of the trade talks and strong economic data helped push gold futures down 2% as this also caused the main fear indicator to drop by more than 6%. of Wall Street, the Cboe Volatility Index (VIX). The VIX enters below 4 pm Friday morning for the first time in two weeks.
In industry news, information technology stocks led the way, rising over 2.1%. Some tech companies derive a substantial portion of their revenue from China and maintain supply chains in the Asian country, so their stock prices often rise and fall with trade-related news. performance, up more than 3% even after having jumped nearly 2.8% the day before.
Along with the outperformance of tech companies, the tech-heavy Nasdaq Composite (COMP) was the best performer of the three major US indices, rising 1.75% while the Dow Jones Industrial Average ($ DJI) gained more 1.4% and the S&P 500 Index (SPX) added 1.3%.
The excitement has once again pushed the SPX towards the 3000 mark, which makes us think that maybe now is the time for a word of caution to offset some of the dizzying sensations that days like Thursday can bring.
On the one hand, the planned trade negotiations mark an improvement on the stalemate we have recently experienced. On the other hand, it’s just talking. The stock market’s benchmark may struggle to break through resistance around this psychologically important 3,000 mark without concrete progress outside of trading, leaving this figure at the top of a 2,750-3,000 range for the benchmark. After all, before the October talks were announced, the most recent concrete step the two sides took was to impose additional tariffs on each other’s goods.
Looking towards next week, investors should see reports on producer and consumer inflation, retail sales and a consumer confidence index. (See more below.)
LESS BRILLIANT. Gold futures prices (/ GC) took him on the chin on Thursday as strong US economic data and encouraging news on the US-China trade front dulled the metal’s appeal as a safe haven . Still, it’s been a fairly summery season for the yellow metal, which has gone from less than $ 1,300 an ounce on Remembrance Day to over $ 1,550 on Labor Day. Data source: CME Group. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance is no guarantee of future results.
Inflationary pressure: Ahead of today’s jobs report, the Fed earlier this week released an anecdotal snapshot of the state of the labor market in its beige book. The bottom line was that employment was growing at a modest pace overall and that the tightness in the labor market continued to hold back the growth of business activity. Amid the tension, wage growth remained modest to moderate as there was strong upward pressure on the wages of entry-level, low-skilled, tech, construction and construction workers. certain professional services. Companies were also using other efforts such as improved benefits, flexible working arrangements and signing bonuses to attract and retain workers. Amidst this inflationary pressure, it might be interesting to see what the producer and consumer inflation reports have to show us next week. The strength of the labor market also provides a counterpoint to recent rhetoric about the recession and the market’s desire for the Fed to continue lowering interest rates.
Hindsight…: The American consumer has been an island of strength in seas of concern over global economic growth amid the trade war between the United States and China. Retail sales in the United States in July were better than expected. In the government’s latest GDP report, growth in consumer spending was revised to 4.7% from 4.3%. A recent index measuring small business optimism has risen in part on strong consumer spending, as consumer confidence has improved in recent months. And despite some lingering issues in the brick and mortar retail industry, Walmart Inc (NYSE: WMT), Amazon.com, Inc. (NASDAQ: AMZN), and Target company (NYSE: TGT) have performed well in their last quarters, bolstering the resilience of the U.S. consumer despite global economic turmoil. We’ll know more when the retail sales figures for August are released next Thursday.
… against a crystal ball: But the data on retail sales is retrospective. Consumer sentiment, however, may offer clues to the current state of consumer spending, perhaps with a look to the future. So it’s worth watching the University of Michigan’s preliminary reading on September Consumer Sentiment, which is expected to be released next Friday. Amid the price negativity, August’s headline count fell to 89.8 from the previous August reading of 92.1. It remains to be seen whether this negative feeling will increase or decrease, or stay the same. Either way, it might be interesting to see how consumers feel as the trade war progresses.
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