Hopes For Fed Slowdown Fade After Strong Jobs Data

The major U.S. index futures are currently pointing to a lower open on Friday, with stocks likely to give back ground after moving sharply higher over the course of the previous session.

Traders may look to cash in on yesterday’s strong gains, as stronger than expected jobs data offsets the faint hopes that the Federal Reserve might slow its planned pace of interest rate hikes.

The Labor Department’s closely watched monthly employment report showed job growth in the U.S. exceeded economist estimates in the month of May.

The report showed non-farm payroll employment jumped by 390,000 jobs in May after surging by an upwardly revised 436,000 jobs in April.

Economists had expected employment to increase by about 325,000 jobs compared to the addition of 428,000 jobs originally reported for the previous month.

Meanwhile, the Labor Department said the unemployment rate remained unchanged at 3.6 percent. The unemployment rate was expected to edge down to 3.5 percent.

With traders shrugging off lower guidance from software giant Microsoft (MSFT), stocks showed a substantial turnaround over the course of the trading session on Thursday. The major averages recovered from early weakness to end the day sharply higher.

The major averages saw further upside going into the close, ending the session at their best levels of the day. The Dow jumped 435.05 points or 1.3 percent to 33,248.28, the Nasdaq spiked 322.44 points or 2.7 percent to 12,316.90 and the S&P 500 surged 75.59 points or 1.8 percent to 4,176.82.

The rally on the day more than offset the pullback seen over the two previous sessions, with the major averages reaching their best closing levels in almost a month.

The strength that emerged on Wall Street may partly have reflected optimism that the Federal Reserve could alter its plans to aggressively raise interest rates in the light of some weak economic data.

Before the start of trading, payroll processor ADP released a report showing much weaker than expected private sector job growth in the month of May.

ADP said private sector employment climbed by 128,000 jobs in May after jumping by a downwardly revised 202,000 jobs in April.

Economists had expected private sector employment to surge by 300,000 jobs compared to the addition of 247,000 jobs originally reported for the previous month.

“Hopes for a less aggressive tightening campaign by the Fed improved after a wrath of economic data suggests the economy is softening and that inflation is cooling,” said Edward Moya, senior analyst with OANDA.

He added, “We might not see a significant deceleration with inflation prints, but expectations are growing that the Fed won’t maintain an aggressive inflation rate hiking campaign.”

However, Fed Vice Chair Lael Brainard told CNBC it’s “very hard to see the case for a pause” in rate hikes, noting the central bank still has “a lot of work to do to get inflation down to our 2% target.”

On Friday, the Labor Department is scheduled to release its more closely watched monthly employment report, which includes both public and private sector jobs.

Economists currently expect employment to jump by 325,000 jobs in May after surging by 428,000 jobs in April, while the unemployment rate is expected to edge down to 3.5 percent from 3.6 percent.
Gold stocks showed a substantial move to the upside on the day, resulting in a 4.9 percent spike by the NYSE Arca Gold Bugs Index. The rally by gold stocks came amid a notable increase by the price of the precious metal.

Significant strength also emerged among semiconductor stocks, as reflected by the 3.6 percent surge by the Philadelphia Semiconductor Index. The index ended the session at its best closing level in almost a month.

Retail stocks also moved sharply higher over the course of the session, driving the Dow Jones U.S. Retail Index up by 3 percent to a nearly one-month closing high.

Chemical, networking, computer hardware and brokerage stocks also showed strong moves to the upside, reflecting the broad based buying interest that emerged on Wall Street.

Commodity, Currency Markets

Crude oil futures are rising $0.59 to $117.46 a barrel after jumping $1.61 to $116.87 a barrel on Thursday. Meanwhile, after climbing $22.70 to $1,871.40 an ounce in the previous session, gold futures are falling $4.70 to $1,866.70 an ounce.

On the currency front, the U.S. dollar is trading at 130.58 yen versus the 129.84 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0705 compared to yesterday’s $1.0747.

Asia

Asian stocks advanced on Friday amid easing COVID-19 restrictions in China and bets that the Fed might slow its current aggressive pace of rate hikes over the coming months.

Investors awaited U.S. employment data due later in the day for further clues about how far the Federal Reserve may tighten policy to curb inflation.

Fed Vice Chair Lael Brainard told CNBC it’s “very hard to see the case for a pause” in rate hikes and the central bank still has “a lot of work to do to get inflation down to the 2 percent target.”

Markets in China, Hong Kong and Taiwan were closed for the Dragon Boat Festival holiday.

Japanese shares rallied to hit an almost two-month high as the country and the U.S. signed a revision of the “beef safeguard” mechanism under the U.S.-Japan Trade Agreement. The Nikkei 225 Index jumped 1.3 percent to 27,761.57, while the broader Topix closed 0.4 percent higher at 1,933.14.

Fast Retailing spiked 5.9 percent after the apparel company said Uniqlo same-store and e-commerce sales in Japan increased 17.5 percent year-on-year in May. Tech stocks surged, with Tokyo Electron and SoftBank Group both rising over 2 percent.

Z Holdings jumped 5.1 percent on fund raising reports, while Toshiba gave up 2.4 percent after revealing it had received eight initial proposals to go private.

Seoul stocks rebounded from the previous session’s sharp drop as OPEC agreed to pump more crude oil over the next two months, helping ease some inflation worries.

The Kospi climbed 0.4 percent to close at 2,670.65. Chemical firm LG Chem gained 2.6 percent and refiner SK Innovation surged 4.6 percent.

Australian markets rose notably, led by gains in the mining and technology sectors. Strong iron ore price lifted BHP and Rio Tinto up 2.5 percent and 2.7 percent, respectively.

Lithium miners Pilbara Minerals, Liontown Resources and IGO jumped 4-7 percent. In the tech sector, Block shares surged 4.5 percent and Xero added 1 percent.

The benchmark S&P/ASX 200 Index advanced 0.9 percent to 7,238.80, while the broader All Ordinaries index ended 1 percent higher at 7,472.40.

Europe

European stocks have risen in thin trading on Friday, with the U.K. markets still closed for the Queen’s Platinum Jubilee celebrations. Sentiment has been underpinned by encouraging German export data released earlier in the day.

German exports advanced 4.4 percent on a monthly basis in April, in contrast to the 3.0 percent decline posted in March, data from Destatis showed.

Shipments were expected to grow only 1.5 percent. Year-on-year, export growth improved to 9.2 percent from 8.5 percent.

Meanwhile, the eurozone services PMI came in at 56.1 in May, a marked decline from 57.7 in April.

Currently, the German DAX Index and the French CAC 40 Index are both up by 0.1 percent.

Novo Nordisk has moved to the upside after it reported headline results from the main phases of ONWARDS 1 and ONWARDS 6 phase 3a trials with once-weekly insulin icodec.

Meanwhile French auto parts supplier Faurecia has slumped on equity dilution worries. The company said it is carrying out a 705 million-euro ($758 million) capital increase to fund its acquisition of German rival Hella.

U.S. Economic Reports

Job growth in the U.S. exceeded economist estimates in the month of May, according to a closely watched report released by the Labor Department on Friday.

The report showed non-farm payroll employment jumped by 390,000 jobs in May after surging by an upwardly revised 436,000 jobs in April.

Economists had expected employment to increase by about 325,000 jobs compared to the addition of 428,000 jobs originally reported for the previous month.

Meanwhile, the Labor Department said the unemployment rate remained unchanged at 3.6 percent. The unemployment rate was expected to edge down to 3.5 percent.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on service sector activity in the month of May. The ISM’s services PMI is expected to edge down to 56.4 in May from 57.1 in April, although a reading above 50 would still indicate growth.

Federal Reserve Vice Chair Lael Brainard is due to participate in a discussion on the Community Reinvestment Act before a Modernizing the Community Reinvestment Act: Ensuring Banks Meet the Credit Needs of Their Communities Urban Institute event at 10:30 am ET.

Stocks In Focus

Shares of Turning Point Therapeutics (TPTX) have moved than doubled in pre-market trading after the biopharmaceutical company agreed to be acquired by Bristol Myers Squibb (BMY) for $76 per share in cash of approximately $4.1 billion.

Identity management software firm Okta (OKTA) is also likely to see initial strength after reporting a narrower than expected fiscal first quarter loss on better than expected revenues and raising its full-year guidance.

On the other hand, shares of Tesla (TSLA) are seeing pre-market weakness after a report from Reuters said CEO Elon Musk told executives in an email that he has a “super bad feeling” about the economy and needs to cut about 10 percent of jobs at the electric carmaker.

Luxury home furnishings company RH (RH) may also move to the downside after reporting better than expected fiscal first quarter results but providing disappointing guidance.