(Bloomberg) — Stocks wiped out earlier gains, with traders weighing a batch of mixed economic data ahead of the highly anticipated jobs report.
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Equities lost traction, with the S&P 500 dropping for a third straight day — despite a rally in the world’s largest technology companies. Treasuries barely budged, with traders pricing in over 100 basis points in Federal Reserve rate cuts in 2024. That would imply a jumbo-sized reduction before the year is over. Oil rose after OPEC+ reached an agreement to pause its planned crude production increase for two months.
In the run-up to US payrolls figures, data showed US services expanded at a modest pace. The Institute for Supply Management’s index of services was little changed at 51.5. Readings above 50 indicate expansion. The employment index slipped to 50.2. Also notable: US companies added the fewest jobs since the start of 2021, while jobless claims trailed estimates.
“After today’s mixed numbers, it’s up to tomorrow’s jobs report to give investors a clearer read on the state of the labor market,” said Chris Larkin at E*Trade from Morgan Stanley. “We’re in a ‘good news is good, and bad news is bad’ environment, and markets are still trying to figure out if the economy is slowing too much, and whether the Fed is behind the curve.”
To Matt Maley at Miller Tabak, given the impact last month’s employment report, “we wouldn’t blame investors at all for sitting on their hands for another day.”
The S&P 500 hovered near 5,510. The Bloomberg “Magnificent Seven” gauge of megacaps rose 2%. The Russell 2000 of small firms fell 0.3%. Nvidia Corp. rebounded, with Bank of America Corp. analysts saying its recent plunge has created an “enhanced” buying opportunity. Tesla Inc. rallied 5% on plans to launch the driver assistant in China and Europe.
Treasury 10-year yields advanced one basis point to 3.77%. The dollar wavered.
While equities have stabilized for the moment, that doesn’t mean volatility won’t resume, according to Andrew Brenner at NatAlliance Securities.
“If the economy shows strength tomorrow in nonfarm payrolls, then equities should do better initially, but if rates get slaughtered, that won’t be good,” Brenner said. “If rates rally tomorrow because of a weak number, that won’t be good for equities either. A Fed of 50 would also have a negative context for equities.”
“So we are in a tails we lose, heads we lose,” he concluded.
Following a disappointing jobs report last month, it’s no wonder that investors are “skittish” ahead of Friday’s jobs number, particularly as we’re back in an environment where “good news is good news and bad news is bad news,” noted Bret Kenwell at eToro.
“While the odds currently favor a 25 basis point cut at the Fed’s September meeting, a woefully disappointing jobs report on Friday could shift those odds to favor a 50 basis point cut,” he said. “A 50 basis point cut may seem like welcoming news for equity bulls. However, if the Fed feels forced to go right to a 50 basis point cut, it may suggest there’s a bigger worry about the jobs market than previously acknowledged.”
Kenwell says that ideally, we should see a “better than feared” labor report on Friday, showcasing a labor market that has softened a bit, but isn’t weak, and allows the Fed to usher in a series of 25 basis point rate cuts.
While the ADP report has been a poor prognosticator of non-farm payrolls in recent years, its correlation to the print has been improving this year. This poses a risk for stocks into Friday’s jobs report.
The rolling long-term correlation between monthly changes in the ADP and non-farm payroll series has has been strengthening since late last year, as the chart shows.
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To Stan Shipley at Evercore, the ADP private employment tally and other labor-market metrics suggest a “soft payroll” for August.
“Tomorrow’s payroll report could be softer than expected given the slowdown in ADP estimates” said Jeffrey Roach at LPL Financial. “If the payroll report surprises investors and comes in weaker than expected, the likelihood of a 50 basis-point cut increases at the upcoming Fed meeting.”
The jobs report is expected to show payrolls increased by about 165,000. While above the modest 114,000 gain in July, average growth over the most recent three months would ease to a little more than 150,000 — the smallest in over three years.
Corporate Highlights:
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JetBlue Airways Corp. raised its sales forecast for the current quarter after the carrier said it benefited from re-booking passengers from rival airlines whose flights were disrupted by a technology outage in July.
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C3.ai Inc., a data analysis software company, reported quarterly subscription revenue that missed estimates.
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Hewlett Packard Enterprise Co. reported weaker-than-expected margins, suggesting lower profitability than anticipated in its closely watched business of selling servers for artificial intelligence work.
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Verizon Communications Inc. agreed to buy rival telecommunications operator Frontier Communications Parent Inc. for about $9.59 billion as the New York phone giant looks to expand its high-speed internet business.
Key events this week:
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Eurozone GDP, Friday
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US nonfarm payrolls, Friday
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Fed’s John Williams speaks, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.1% as of 11:06 a.m. New York time
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The Nasdaq 100 was little changed
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The Dow Jones Industrial Average fell 0.4%
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The Stoxx Europe 600 fell 0.2%
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The MSCI World Index fell 0.2%
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Bloomberg Magnificent 7 Total Return Index rose 1.9%
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The Russell 2000 Index fell 0.3%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1083
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The British pound was little changed at $1.3159
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The Japanese yen fell 0.2% to 143.96 per dollar
Cryptocurrencies
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Bitcoin fell 2.5% to $56,612.03
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Ether fell 3% to $2,382.49
Bonds
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The yield on 10-year Treasuries advanced one basis point to 3.77%
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Germany’s 10-year yield was little changed at 2.22%
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Britain’s 10-year yield was little changed at 3.93%
Commodities
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West Texas Intermediate crude rose 1.7% to $70.35 a barrel
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Spot gold rose 0.5% to $2,507.56 an ounce
This story was produced with the assistance of Bloomberg Automation.
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