Futures Inch Higher As Treasury Yields Drop Following Jobs Report

The major U.S. index futures are currently pointing to a modestly higher open on Friday, with stocks poised to extend the upward move seen over the past few sessions.

The futures edged higher following the release of the Labor Department’s closely watched monthly employment report for June.

While employment jumped by more than expected in June, the report also showed downward revisions to job growth in April and May as well as another unexpected uptick by the unemployment rate.

The Labor Department said non-farm payroll employment shot up by 206,000 jobs in June compared to economist estimates for an increase of about 190,000 jobs.

However, the report also showed the increases in employment in April and May were downwardly revised to 108,000 jobs and 218,000 jobs, respectively, reflecting a net downward revision of 111,000 jobs.

The unemployment rate also rose for the third straight month, inching up to 4.1 percent in June from 4.0 percent in May. Economists had expected the unemployment rate to remain unchanged.

With the unexpected uptick, the unemployment rate reached its highest level since hitting a matching rate in November 2021.

Treasury yields have moved lower following the release of the report amid optimism the continued increase by the unemployment rate will convince the Federal Reserve to lower interest rates in the near future.

Nonetheless, overall trading activity may be somewhat subdued on the day, as some traders remain away from their desks following the Independence Day holiday on Thursday.

After moving mostly higher to start the week, stocks saw further upside over the course of the trading session on Wednesday. With the continued upward move, the Nasdaq and the S&P 500 once again reached new record closing highs in an abbreviated trading session.

The Nasdaq advanced 159.54 points or 0.9 percent to 18,188.30 and the S&P 500 climbed 28.01 points or 0.5 percent, although the narrower Dow bucked the uptrend and edged down 23.85 points or 0.1 percent to 39,308.00.

The strength on Wall Street may partly have reflected optimism about the outlook for interest rates following the release of some weaker than expected economic data.

A report released by the Institute for Supply Management showed an unexpected contraction by U.S. service sector activity in the month of June.

The ISM said its services PMI slid to 48.8 in June from 53.8 in May, with a reading below 50 indicating contraction. Economists had expected the index to edge down to 52.5.

On the inflation front, the prices index dipped to 56.3 in June from 58.1 in June, indicating a modest slowdown in the pace of price growth.

“The Fed will be glad to see that the ISM Services PMI reported cooler inflation, and a little concerned that the economy seems to be losing momentum,” said Bill Adams, Chief Economist for Comerica Bank. “But controlling inflation is still the Fed’s number one priority.”

“They are unlikely to feel comfortable enough with progress on that front to cut rates at the July decision,” he added. “Even so, odds of a rate cut at the following decision in September are higher in light of June’s weak ISM PMIs and rising jobless claims.”

The Labor Department released a separate report showing a modest increase by first-time claims for U.S. unemployment benefits in the week ended June 29th.

The report said initial jobless claims rose to 238,000, an increase of 4,000 from the previous week’s revised level of 234,000.

Economists had expected jobless claims to inch up to 235,000 from the 233,000 originally reported for the previous week.

Payroll processor ADP also released a report showing private sector employment in the U.S. increased by slightly less than expected in the month of June.

ADP said private sector employment climbed by 150,000 jobs in June after rising by an upwardly revised 157,000 jobs in May.

Economists had expected private sector employment to increase by 160,000 jobs compared to the addition of 152,000 jobs originally reported for the previous month.

However, overall trading activity remained somewhat subdued, as the markets closed earlier than usual and remained closed for the Independence Day holiday on Thursday.

Gold stocks showed a substantial move to the upside, resulting in a 3.6 percent spike by the NYSE Arca Gold Bugs Index. The rally by gold stocks came amid a sharp increase by the price of the precious metal.

Significant strength was also visible among semiconductor stocks, as reflected by the 1.9 percent jump by the Philadelphia Semiconductor Index.

Steel stocks also turned in a strong performance on the day, driving the NYSE Arca Steel Index up by 1.8 percent.

Airline, networking and oil service stocks also saw some strength, while pharmaceutical and healthcare stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are inching up $0.09 to $83.97 a barrel after jumping $1.07 to $83.88 a barrel on Wednesday. Meanwhile, after surging $36 to $2,369.40 an ounce in the previous session, gold futures are rising $9 to $2,378.40 an ounce.

On the currency front, the U.S. dollar is trading at 160.86 yen versus the 161.28 yen it fetched on Thursday. Against the euro, the dollar is valued at $1.0825 compared to yesterday’s $1.0812.

Asia

Asian stocks fell broadly on Friday as EU tariffs on Chinese imports took effect and China announced the next step in its anti-dumping investigation into European brandy imports.

Traders also reacted to the British general election results and braced for France’s runoff election on Sunday that could see the country’s first far-right government since the World War II Nazi occupation — or no majority emerging at all.

The dollar retreated from its elevated levels as traders eyed the all-important U.S. jobs report later in the day for clues on the Federal Reserve’s future policy path.

Oil prices were on course for another weekly gain despite dipping in Asian trading. Gold prices were set for a second straight weekly gain on bets the Federal Reserve might cut interest rates in September.

China’s Shanghai Composite Index dipped 0.3 percent to 2,949.93 as European tariffs on electric cars from China took effect. Hong Kong’s Hang Seng Index tumbled 1.3 percent to 17,799.61.

Japanese shares ended on a flat note after a choppy session. The Nikkei 225 Index finished marginally lower at 40,912.37 after hitting another record high earlier in the day on the back of a weaker yen and expectations for earnings growth.

The broader Topix Index also briefly hit record levels before reversing course to end 0.5 percent lower at 2,884.18.

Data showed today that Japanese household spending unexpectedly fell in May, as higher prices continued to squeeze consumers’ purchasing power.

Seoul stocks rallied after Samsung Electronics estimated a more than 15-fold rise in its second quarter operating profit, benefiting greatly from increased demand for memory chips from the artificial intelligence industry.

Samsung shares surged 3 percent and rival SK Hynix advanced 2.6 percent, while the Kospi jumped 1.3 percent to 2,862.23.

Australian markets ended slightly lower after two straight sessions of gains. The benchmark S&P/ASX 100 Index slipped 0.1 percent to 7,822.30, with commodity-related stocks and financials leading losses. The broader All Ordinaries Index ended down 0.1 percent at 8,070.10.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index rose 0.4 percent to 11,794.81.

Europe

E uropean stocks have edged higher on Friday after the Labour Party secured a landslide victory in the U.K. election to end 14 years of Conservative rule, as widely expected.

Regarding Sunday’s parliamentary elections in France, opinion polls show the second-round run-off vote may lead to a hung parliament with no clear majority.

On the economic front, German industrial production unexpectedly declined in May, while Eurozone retail sales rose 0.3 percent year-on-year in May after having seen 0.6 percent growth in April, separate set of data showed.

While the German DAX Index has advanced by 0.8 percent, the French CAC 40 Index is up by 0.4 percent and the U.K.’s FTSE 100 Index is up by 0.1 percent.

Roche Holding have moved to the upside after receiving the U.S. FDA approval for the Vabysmo prefilled syringe (PFS) for treating three leading causes of vision loss.

Homebuilders traded higher in London, with Barratt Developments, Persimmon and Taylor Wimpey surging. It is likely that the Labour Party victory will see the introduction of the Freedom to Buy scheme to replace the Mortgage Guarantee Scheme.

Aixtron SE shares have also spiked. The German company, which supplies deposition equipment for chipmakers, announced healthier-than-expected second-quarter orders.

Automakers BMW, Mercedes Benz and Volkswagen have also moved to the upside as steep tariffs on Chinese imports took effect.

Meanwhile, HSBC Holdings has fallen after Bloomberg News reported that French bank BNP Paribas and Swiss lender UBS are showing interest in buying its German wealth-management unit.

U.S. Economic Reports

A closely watched report released by the Labor Department on Friday showed employment in the U.S. jumped by more than expected in the month of June, although the report also showed another unexpected uptick by the unemployment rate.

The Labor Department said non-farm payroll employment shot up by 206,000 jobs in June after surging by a downwardly revised 218,000 jobs in May.

Economists had expected employment to climb by about 190,000 jobs compared to the spike of 272,000 jobs originally reported for the previous month.

Meanwhile, the report said the unemployment rate crept up to 4.1 percent in June from 4.0 percent in May. Economists had expected the unemployment rate to remain unchanged.

With the unexpected increase, the unemployment rate reached its highest level since hitting a matching rate in November 2021.