Positive Reaction To Jobs Report May Lead To Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Friday, with stocks likely to move back to the upside after ending the previous session mostly lower.

The upward momentum on Wall Street comes following the release of the Labor Department’s closely watched report on employment in the month of May.

The report showed job growth in the U.S. reaccelerated in May, although the increase in employment still fell short of economist estimates.

Non-farm payroll employment jumped by 559,000 jobs in May after climbing by an upwardly revised 278,000 jobs in April.

Economists had expected employment to surge by 650,000 jobs compared to the addition of 266,000 jobs originally reported for the previous month.

Employment in the leisure and hospitality sector showed another significant increase, spiking by 292,000 jobs during the month. Notable job growth was also seen in public and private education and health care and social assistance.

The Labor Department also said the unemployment rate fell to 5.8 percent in May from 6.1 percent in April, while economists had expected the unemployment rate to dip to 5.9 percent.

With the bigger than expected decrease, the unemployment rate dropped to its lowest level since hitting 4.4 percent in March of 2020.

Traders may see the weaker than expected job growth as a “Goldilocks” situation, where the economy is expanding but not fast enough to encourage the Federal Reserve to tighten monetary policy.

After coming under pressure early in the session, stocks staged a recovery attempt but still ended Thursday’s trading mostly lower. The Dow posted a modest loss on the day, while the tech-heavy Nasdaq closed sharply lower.

The Dow edged down just 23.34 points or 0.1 percent to 34,577.04 after tumbling by more than 250 points in early trading. The Nasdaq slumped 141.82 points or 1 percent to 13,614.51 and the S&P 500 fell 15.27 points or 0.4 percent to 4,192.85.

The early weakness on Wall Street came as a batch of upbeat jobs data led to renewed concerns about the outlook for monetary policy.

Before the start of trading, payroll processor ADP released a report showing private sector employment in the U.S. spiked by much more than expected in the month of May.

ADP said private sector employment soared by 978,000 jobs in May after surging by a downwardly revised 654,000 jobs in April.

Economists had expected private sector employment to increase by 650,000 jobs compared to the addition of 742,000 jobs originally reported for the previous month.

A separate report from the Labor Department showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended May 29th.

The report said initial jobless claims dipped to 385,000, a decrease of 20,000 from the previous week’s revised level of 405,000.

Economists had expected jobless claims to edge down to 395,000 from the 406,000 originally reported for the previous week.

With the slightly bigger than expected decrease, jobless claims once again fell to their lowest level since hitting 256,000 in the week ended March 14, 2020.

Meanwhile, the Institute for Supply Management released a report showing record growth in service sector activity in the month of May.

The ISM said its services PMI rose to 64.0 in May from 62.7 in April, with a reading above 50 indicating growth in the sector. Economists had expected the index to inch up to 63.0.

With the bigger than expected increase, the services PMI reached another all-time high, surpassing the previous record high of 63.7 in March.

Gold stocks showed a substantial move to the downside on the day, with a steep drop by the price of the precious metal weighing on the sector.

With gold for August delivery plummeting $36.60 to $1,873.30 an ounce, the NYSE Arca Gold Bugs Index plunged by 3.6 percent.

Significant weakness was also visible among airline stocks, as reflected by the 3.3 percent nosedive by the NYSE Arca Airline Index.

Housing, semiconductor and steel stocks also saw considerable weakness on the day, while networking stocks bucked the downtrend.

Commodity, Currency Markets

Crude oil futures are rising $0.42 to $69.23 a barrel after edging down $0.02 to $68.81 a barrel on Thursday. Meanwhile, after plunging $36.60 to $1,873.30 an ounce in the previous session, gold futures are climbing $7.60 to $1,880.90 an ounce.

On the currency front, the U.S. dollar is trading at 109.82 yen versus the 110.29 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2155 compared to yesterday’s $2127.

Asia

Asian stocks ended Friday’s session on a mixed note as investors awaited a key U.S. jobs report later in the day that could provide more clarity on the economic recovery and the potential for higher inflation.

Analysts have predicted an improvement for May, with 650,000 jobs added compared with April’s surprisingly tepid gain of 266,000.

Chinese shares ended a choppy session with modest gains as U.S. President Joe Biden expanded a blacklist of Chinese firms that are off-limits to American investors over their links to Beijing’s “military-industrial complex.”

The benchmark Shanghai Composite Index edged up 7.63 points, or 0.2 percent, to 3,591.84, while Hong Kong’s Hang Seng Index ended down 47.93 points, or 0.2 percent, at 28,918.10.

Japanese shares retreated after two straight sessions of modest gains. The Nikkei 225 Index fell 116.59 points, or 0.4 percent, to 28,941.52 as investors fretted about the extension of the COVID-19 state of emergency in several major areas. The broader Topix finished marginally higher at 1,959.19.

Heavyweight SoftBank Group shed 1.3 percent, Tokyo Electric Power tumbled 3.1 percent and Sumitomo Metal Mining gave up 2.8 percent. Automakers rose broadly, with Honda gaining 1 percent, while Toyota and Nissan both climbed 1.6 percent each.

Shares of Chinese restaurant chain Totenko soared 9.4 percent on news about a possible panda pregnancy at the nearby Ueno Zoo in Tokyo.

In economic news, the average of household spending in Japan rose an annual 13.0 percent in April, a government report showed earlier in the day. That blew away forecasts for an increase of 9.3 percent following the 6.2 percent gain in March.

Australian markets eked out modest gains to hit record highs for the third day running. The benchmark S&P/ASX 200 Index rose 35.30 points, or 0.4 percent, to 7,295.40 and posted a 1.6 percent weekly gain. The broader All Ordinaries Index ended up 32.60 points, or 0.4 percent, at 7,543.30.

The big four banks rose between 1.3 percent and 1.5 percent on hopes for an economic recovery and accommodative financial conditions. Export-focused healthcare companies gained ground as the greenback hit multi-weeks highs. Sector heavyweight CSL advanced 1.5 percent.

Mining heavyweights BHP and Rio Tinto fell 1.7 percent and 1.9 percent, respectively, as copper plunged to five-week lows on fears of slowing demand from its biggest consumer.

Gold miner Evolution Mining slumped 4.6 percent and Newcrest lost 2.1 percent as bullion prices hit a two-week low on dollar strength. Tech stocks fell broadly, with Appen tumbling 6.3 percent.

Seoul stocks ended lower to snap a five-day winning streak as investors awaited the monthly U.S. jobs report for directional cues. The benchmark Kospi slipped 7.35 points, or 0.2 percent, to close at 3,240.08.

Internet portal operator Naver dropped 1.4 percent, while pharmaceutical firm Samsung Biologics climbed 1.9 percent and automaker Hyundai Motor added 1.3 percent.

Europe

European stocks are turning in a lackluster performance on Friday as traders digest the U.S. jobs report. Amid increasing bets over possible tapering of stimulus, market participants are also looking ahead to the Fed and the European Central Bank policy meetings next week for directional cues.

While the U.K.’s FTSE 100 Index is down by 0.2 percent, the French CAC 40 Index and the German DAX Index are both up by 0.1 percent.

British Airways-owner IAG, Wizz Air Holdings and easyJet have all moved lower as Britain added seven more countries to its “red list” of destinations that require hotel quarantine on return to England.

Ryanair has also fallen. The chief executive of the airline expects there to be unrestricted movement between Europe and Britain from July onwards.

Vivendi shares have edged lower. Hedge-fund billionaire William Ackman’s special-purpose acquisition company, Pershing Square Tontine Holdings Ltd. (PSTH), confirmed that it is in discussions with the French media giant to acquire 10 percent of the outstanding ordinary shares of Universal Music Group B.V. or “UMG” for about $4 billion, representing an enterprise value of 35 billion euros for UMG.

Lanxess AG shares are little changed. The U.K’s Competition and Markets Authority said that it is investigating the proposed acquisition of Emerald Kalama Chemical LLC by the German specialty chemicals company.

In economic news, Eurostat data showed that Eurozone retail sales dropped 3.1 percent in April on a sequential basis compared with the 1.0 percent decline expected by economists.

Germany’s construction Purchasing Managers’ Index fell to 44.5 in May from 46.2 in the previous month, survey results from IHS Markit showed. This was the lowest reading since February, when the sector was impacted by a bout of severe winter weather.

The Chartered Institute of Procurement & Supply construction Purchasing Managers’ Index for the U.K. rose to 64.2 in May from 61.6 in April.

U.S. Economic Reports

Job growth in the U.S. reaccelerated in the month of May, according to a closely watched report released by the Labor Department on Friday, although the increase in employment still fell short of economist estimates.

The report said non-farm payroll employment jumped by 559,000 jobs in May after climbing by an upwardly revised 278,000 jobs in April.

Economists had expected employment to surge by 650,000 jobs compared to the addition of 266,000 jobs originally reported for the previous month.

The Labor Department also said the unemployment rate fell to 5.8 percent in May from 6.1 percent in April, while economists had expected the unemployment rate to dip to 5.9 percent.

At 10 am ET, the Commerce Department is scheduled to release its report on new orders for manufactured goods in the month of April. Factory orders are expected to dip by 0.2 percent.

Stocks In Focus

Shares of DocuSign (DOCU) are moving sharply higher in pre-market trading after the electronic signature technology company reported better than expected fiscal first quarter results and provided upbeat guidance.

Discount retailer Five Below (FIVE) is also likely to see initial strength after reporting fiscal first quarter results that exceeded analyst estimates on both the top and bottom lines.

Shares of Zumiez (ZUMZ) may also move to the upside after the specialty apparel retailer reported better than expected fiscal first quarter.

On the other hand, shares of AMC Entertainment (AMC) may extend yesterday’s sell-off after the movie theater operator revealed plans to ask shareholders for the authority to issue up to 25 million shares.