Disappointing Jobs Data May Lead To Initial Weakness On Wall Street

The major U.S. index futures are currently pointing to a modestly lower open on Thursday, with stocks likely to move to the downside after ending the previous session narrowly mixed.

The futures edged lower following the release of a report from payroll processor ADP showing private sector employment in the U.S. increased by much less than expected in the month of August.

ADP said private sector employment rose by 99,000 jobs in August after climbing by a downwardly revised 111,000 jobs in July.

Economists had expected private sector employment to jump by 145,000 jobs compared to the addition of 122,000 jobs originally reported for the previous month.

“The job market’s downward drift brought us to slower-than-normal hiring after two years of outsized growth,” said ADP chief economist Nela Richardson. “The next indicator to watch is wage growth, which is stabilizing after a dramatic post-pandemic slowdown.”

The data is likely to add to recent concerns about the economic outlook but could also boost the chances of accelerated interest rate cuts by the Federal Reserve.

Meanwhile, the Labor Department released a separate report showing a modest decrease by first-time claims for U.S. unemployment benefits in the week ended August 31st.

Following the sell-off seen during Tuesday’s session, stocks showed a lack of direction over the course of the trading day on Wednesday. The major averages spent the day bouncing back and forth across the unchanged line.

The major averages eventually finished the day narrowly mixed. While the Dow inched up 38.04 points or 0.1 percent to 40,974.97, the S&P 500 dipped 8.86 points or 0.2 percent to 5,520.07 and the Nasdaq fell 52.00 points or 0.3 percent to 17,084.30.

The lackluster performance on Wall Street may have reflected uncertainty about the near-term outlook for the markets following the substantial volatility seen over the past couple months.

While stocks reached new record highs in mid-July, the markets experienced a significant sell-off in early August amid concerns about the economic outlook.

Stocks have subsequently shown a substantial rebound, with the Dow recently reaching a new record high, as traders expressed optimism about the Federal Reserve lowering interest rates later this month.

However, worries about the economy continue to hang over the markets following Tuesday’s disappointing readings on manufacturing activity.

The Labor Department also released a report showing a bigger than expected decrease by job openings in the U.S. in the month of July.

The Labor Department said job openings edged to 7.67 million in July from a downwardly revised 7.91 million in June.

Economists had expected jobless claims to dip to 8.10 million from the 8.18 million originally reported for the previous month.

“The report offers further evidence of cooler labor market conditions but doesn’t change our call for the Federal Reserve to begin the process of normalizing interest rates with a 25bp cut at the FOMC meeting on September 18,” said Nancy Vanden Houten, U.S. Lead Economist at Oxford Economics.

She added, “The pace of hiring ticked up slightly, but layoffs and other separations increased, suggesting some downside risk to our forecast for August job growth of 170,000.”

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster performance by the broader markets.

Energy stocks saw considerable weakness on the day, however, as the price of crude oil tumbled below $70 a barrel to its lowest levels in nine months.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index and the NYSE Arca Oil Index both slid by 1.5 percent.

Gold, steel and computer hardware stocks also saw further downside, while telecom stocks moved sharply higher, driving the NYSE Arca North American Telecom Index up by 2.2 percent.

Commodity, Currency Markets

Crude oil futures are climbing $0.71 to $69.91 a barrel after slumping $1.14 to $69.20 a barrel on Wednesday. Meanwhile, after inching up $3 to $2,526 an ounce in the previous session, gold futures are jumping $26.90 to $2,552.90 an ounce.

On the currency front, the U.S. dollar is trading at 143.11 yen versus the 143.74 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1094 compared to yesterday’s $1.1082.

Asia

Asian stocks ended mixed on Thursday as investors digested weak U.S. manufacturing data and waited for more U.S. data this week, including Friday’s all-important jobs report for directional cues.

The dollar struggled to find footing in Asian trading, helping gold prices recover some ground. Crude prices rose modestly after industry data showed a decline in inventories in the U.S. for the week ending August 30.

China’s Shanghai Composite Index inched up 0.1 percent to 2,788.31 after reports authorities are considering cutting interest rates on as much as $5.3 trillion of mortgages as part of efforts to shore up the battered property market and economy.

Hong Kong’s Hang Seng Index finished edged down 0.1 percent to 17,444.30 on growth worries after a private survey revealed growth in China’s services sector activity slowed in August despite the summer travel peak.

Japanese markets fell sharply, with sentiment weighed down by a stronger yen and losses by semiconductor-related stocks. The yen held its ground against the dollar as positive wage growth triggered speculation of a BoJ rate hike.

The Nikkei 225 Index slumped 1.1 percent to 36,657.09, marking its lowest level since August 14 and its third consecutive session of losses. The broader Topix Index settled 0.5 percent lower at 2,620.76.

Advantest fell 2.9 percent and Tokyo Electron lost 2.5 percent, tracking a slump in AI chip firm Nvidia and other technology shares in the U.S. trading session overnight. Market heavyweight Fast Retailing tumbled 3.8 percent.

Seoul stocks edged down slightly as revised data showed the country’s economy shrank 0.2 percent in the second quarter on weaker domestic consumption and investment by private businesses. The Kospi slipped 0.2 percent to 2,575.50.

Australian stocks eked out modest gains, with rate-sensitive banks and real estate stocks leading the way higher despite RBA Governor Michele Bullock advising against expecting near-term rate cuts.

The benchmark S&P/ASX 200 Index rose 0.4 percent to 7,982.40 after two days of declines. The broader All Ordinaries Index climbed 0.4 percent to 8,187.70.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 index jumped 1.0 percent to 12,678.66.

Europe

European stocks are turning in a mixed performance on Thursday after having hit a two-week low on Wednesday on growth worries.

Eurozone retail sales volumes rose by 0.1 percent month-on-month in July, Eurostat reported today, matching expectations.

Separate data revealed German factory orders unexpectedly grew in July largely due to a surge in demand for transportation equipment.

Incoming new orders advanced 2.9 percent on a monthly basis in July following June’s revised 4.6 percent expansion. Orders were forecast to fall 1.6 percent.

While the German DAX Index is up by 0.2 percent, the U.K.’s FTSE 100 Index is down by 0.2 percent and the French CAC 40 Index is down by 0.7 percent.

German specialty chemicals company Lanxess AG has moved sharply higher after Morgan Stanley raised its rating on the stock to “Overweight” from “Underweight”.

Emerging markets-focused asset manager Ashmore Group has also rallied nearly after reporting a relatively positive set of final results.

Homebuilder Vistry Group has also surged after an announcement that it would buy back shares worth 130 million pounds ($171 million).

Meanwhile, Churchill China shares have plunged after the British pottery giant reported a 7.8 percent drop in revenue to £40.6 million for the first half of 2024.

Associated British Foods has also moved sharply lower after the Primark owner said wet weather put a dampener on its second-half retail sales.

U.S. Economic News

A report released by payroll processor ADP on Thursday showed private sector employment in the U.S. increased by much less than expected in the month of August.

ADP said private sector employment rose by 99,000 jobs in August after climbing by a downwardly revised 111,000 jobs in July.

Economists had expected private sector employment to jump by 145,000 jobs compared to the addition of 122,000 jobs originally reported for the previous month.

Meanwhile, the Labor Department released a report on Thursday showing a modest decrease by first-time claims for U.S. unemployment benefits in the week ended August 31st.

The report said initial jobless claims dipped to 227,000, a decrease of 5,000 from the previous week’s revised level of 232,000.

Economists had expected jobless claims to edge down to 230,000 from the 231,000 originally reported for the previous week.

The Labor Department said the less volatile four-week moving average also slipped to 230,000, a decrease of 1,750 from the previous week’s revised average of 231,750.

A separate report released by the Labor Department on Thursday showed labor productivity in U.S. jumped by more than previously estimated in the second quarter, while unit labor costs rose by less than previously estimated.

The Labor Department said labor productivity shot up by 2.5 percent in the second quarter compared to the previously reported 2.3 percent surge. Economists expected the pace of productivity growth to be unrevised.

The upwardly revised productivity growth in the second quarter reflects a significant acceleration compared to the 0.4 percent increase in the first quarter.

Meanwhile, the report said unit labor costs rose by 0.4 percent in the second quarter compared to the previously reported 0.9 percent advance. Economists had expected the pace of labor cost growth to be unrevised.

The downwardly revised increase in labor cost growth in the second quarter compares to the 3.8 percent spike seen in the first quarter.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on service sector activity in the month of August.

The ISM’s services PMI is expected to edge down to 51.1 in August from 51.4 in July, but a reading above would still indicate growth.

The Energy Information Administration is due to release its report on oil inventories in the week ended August 30th at 11 am ET.

Crude oil inventories are expected to slip by 0.9 million barrels after dipping by 0.8 million barrels in the previous week.

Also at 11 am ET, the Treasury Department is schedule to announce the details of this month’s auction of three-year and ten-year notes and thirty-year bonds.

Stocks In Focus

Shares of C3.ai, Inc. (AI) are moving sharply lower in pre-market trading after the artificial intelligence company reported weaker than expected fiscal third quarter subscription revenue.

Electric vehicle charging company ChargePoint (CHPT) is also likely to come under pressure after reporting fiscal second quarter revenue that missed analyst estimates and providing disappointing revenue guidance for the current quarter.

On the other hand, shares of JetBlue (JBLU) are likely to see initial strength after airline boosted its third quarter revenue guidance.