Weaker Than Expected Jobs Data May Lead To Strength On Wall Street

The major U.S. index futures are currently pointing initial strength on Wall Street on Wednesday, with stocks likely to see further upside after ending yesterday’s lackluster session mostly higher.

Early buying interest may be generated in reaction to a report from payroll processor ADP showing private sector job growth in the U.S. slowed by more than expected in the month of May.

ADP said private sector employment climbed by 152,000 jobs in May after jumping by a downwardly revised 188,000 jobs in April.

Economists had expected private sector employment to increase by 173,000 jobs compared to the addition of 192,000 jobs originally reported for the previous month.

While the bigger than expected slowdown in job growth may add to recent concerns about the economy, the data is also likely to add to optimism about the outlook for interest rates.

The markets may also continue to take their cues from Nvidia (NVDA), with the AI darling poised to reach a new record intraday high.

Overall trading activity may remain somewhat subdued, however, as traders look ahead to the release of the Labor Department’s closely watched monthly jobs report on Friday.

Economists currently expect the report to show employment jumped by 185,000 jobs in May after climbing by 175,000 jobs in April, while the unemployment rate is expected to hold at 3.9 percent.

Stocks fluctuated over the course of the trading session on Tuesday before eventually ending the day modestly higher. The major averages all finished the day in positive territory following the mixed performance seen on Monday.

The Dow climbed 140.26 points or 0.4 percent to 38,711.29, the Nasdaq rose 28.38 points or 0.2 percent to 16,857.05 and the S&P 500 edged up 7.94 points or 0.2 percent to 5,291.34.

The higher close by the major averages came amid a notable decrease by treasury yields, which extended the sharp pullback seen over the past few sessions.

The yield on the benchmark ten-year note closed lower for the fourth straight session, pulling back further off the nearly one-month closing high set last Wednesday.

The continued advance by treasuries came amid signs of weakness in the labor market, with a report from the Labor Department showing a modest decrease in U.S. job openings in the month of April.

The Labor Department said job openings fell to 8.059 million in April from a downwardly revised 8.355 million in March.

Economists had expected job openings to dip to 8.340 million from the 8.488 million originally reported for the previous month.

Bond traders are seemingly optimistic that the weakness in the labor market will encourage the Federal Reserve to lower interest rates in the coming months.

Despite the modest gains posted by the major averages, gold stocks moved sharply lower on the day, dragging the NYSE Arca Gold Bugs Index down by 4.2 percent. The sell-off by gold stocks came amid a notable decrease by the price of the precious metal.

Significant weakness was also visible among steel stocks, as reflected by the 3.3 percent slump by the NYSE Arca Steel Index.

Energy stocks also saw considerable weakness, as the price of crude oil saw further downside after OPEC+ announced plans to increase production starting in October.

Housing, financial and networking stocks also showed notable moves to the downside, while telecom, pharmaceutical and commercial real estate stocks saw some strength on the day.

Commodity, Currency Markets

Crude oil futures are rising $0.39 to $73.64 a barrel after slumping $0.97 to $73.25 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,355.40, up $8 compared to the previous session’s close of $2,347.40. On Tuesday, gold tumbled $21.90.

On the currency front, the U.S. dollar is trading at 156.10 yen compared to the 154.88 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0873 compared to yesterday’s $1.0879.

Asia

Asian stocks ended mixed on Wednesday, with Japanese markets leading regional losses as strong wage data spurred expectations of a 2024 Bank of Japan interest rate hike.

Chinese stocks fell notably even as a private survey showed China’s services sector expanded at its fastest pace since last July in May.

Indian markets rebounded after suffering heavy losses in the previous session amid concerns that a smaller majority will see Prime Minister Modi face more difficulty in doling out reforms and infrastructure spending.

The dollar regained some of its lost momentum as focus shifted to the European Central Bank’s policy decision on Thursday and the monthly U.S. payroll data due on Friday.

Gold edged up slightly in Asian trading, while oil was little changed to hover near its lowest level in nearly four months after industry data pointed to an increase in U.S. crude stockpiles.

China’s Shanghai Composite Index fell 0.8 percent to 3,065.40, dragged lower by consumer and property shares. Hong Kong’s Hang Seng Index finished 0.1 percent lower at 18,424.96 after a choppy session.

Japanese markets lost ground as the yen rebounded on strong wage data. The Nikkei 225 Index slumped 0.9 percent to 38,490.17, while the broader Topix Index settled 1.4 percent lower at 2,748.22.

Shares of shipping, steel and insurance companies led losses. SoftBank Group jumped 4.6 percent after reports that Elliott Management has rebuilt a stake worth over $2 billion in the Japanese tech investor.

Seoul stocks rallied, with the Kospi climbing 1.0 percent to 2,689.50 after data revealed inflation in the country cooled more than expected to a 10-month low in May.

Heavyweight chipmaker Samsung Electronics surged 2.8 percent after Nvidia’s CEO allayed investor concerns about the company’s processors lagging behind competitors.

Australian stocks eked out modest gains despite first quarter GDP numbers coming in below expectations. The benchmark S&P/ASX 200 Index rose 0.4 percent to 7,769, with healthcare and consumer staple stocks pacing the gainers.

Mining and energy stocks fell again, tracking lower commodity prices. The broader All Ordinaries Index climbed 0.4 percent to 8,022.20.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index jumped 1.0 percent to 11,996.71 after data showed a strong rebound in the Terms of Trade in the first quarter.

Europe

European stocks have moved higher on Wednesday as investors look ahead to Thursday’s ECB meeting and the release of U.S. labor market data on Friday for directional cues.

The European Central Bank is expected to ease borrowing costs by 25 basis points from the present record levels of 4 percent.

In economic news, the final reading of the HCOB eurozone composite PMI stood at 52.2 in May, down marginally from the preliminary reading of 52.3 but up from 51.7 in April. That was the highest rate of growth since May 2023 as inflation continued to cool.

Elsewhere, French industrial output advanced 0.5 percent on a monthly basis in April, reversing a 0.2 percent dip in the previous month, data from the statistical office INSEE showed. This was the strongest increase in five months.

While the U.K.’s FTSE 100 Index has risen by 0.4 percent, the French CAC 40 Index and the German DAX Index are both up by 1.0 percent.

In corporate news, Zara-owner Inditex has moved sharply higher after posting sales and profit growth in its first-quarter results.

KPN has also advanced after it signed an agreement with Dutch pension fund ABP to create a new tower company (TowerCo).

Office owner and operator Workspace Group has also shown a strong move to the upside despite widening its pretax loss.

Drug maker AstraZeneca has also risen as it announced the conclusion of its acquisition of clinical-stage biopharmaceutical company Fusion Pharmaceuticals.

Meanwhile, Swedish radiation therapy equipment maker Elekta AB has plunged after its fiscal fourth quarter EBIT missed estimates.

British gas owner Centrica has also tumbled after saying its performance so far this year has been in line with analyst expectations.

U.S. Economic Reports

A report released by payroll processor ADP on Wednesday showed private sector job growth in the U.S. slowed by more than expected in the month of May.

ADP said private sector employment climbed by 152,000 jobs in May after jumping by a downwardly revised 188,000 jobs in April.

Economists had expected private sector employment to increase by 173,000 jobs compared to the addition of 192,000 jobs originally reported for the previous month.

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 rise to 50.5 in May from 49.4 in April, with a reading above 50 indicating growth.

The Energy Information Administration is due to release its report on oil inventories in the week ended May 31st at 10:30 am ET.

Crude oil inventories are expected to decrease by 1.9 million barrels after slumping by 4.2 million barrels in the previous week.

Stocks In Focus

Shares of Hewlett Packard Enterprise (HPE) are surging in pre-market trading after the technology company reported fiscal second quarter results that exceeded analyst estimates on both the top and bottom lines.

Cybersecurity company CrowdStrike (CRWD) is also seeing substantial pre-market strength after reporting better than expected fiscal first quarter results and providing upbeat guidance.

Meanwhile, shares of Dollar Tree (DLTR) may move to the downside after the discount retailer reported fiscal first quarter results roughly in line with analyst estimates.

Dollar Tree also said it has initiated a formal review of strategic alternatives for its Family Dollar business segment, including a potential sale.