Friday, September 4, 2020

Will Today’s NFP Report Help US Stocks Recover?

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News shaping
the markets today

     

What’s happening: US stocks suffered significant losses on Thursday, ahead of the all-important jobs report due for release today.

What happened: Following a phenomenal rally last month, technology and other stocks benefitting from pandemic-induced trends headed sharply lower on Thursday. Some of the sell-off was triggered by profit-taking, after analyst reports suggested that the biggest tech stocks were trading at unsustainably high multiples.

Investors also remained cautious ahead of the US Labor Department’s nonfarm payrolls report for August, scheduled for release today.

Why it matters: On Wednesday, the S&P 500 recorded its 22nd record close of the year, while the tech-laden Nasdaq 100 achieved its 43rd record finish. The Dow Jones was also not far from its all-time high, breaching the 29,000 mark for the first time since February.

Markets plunged sharply on Thursday, without any specific catalyst, apart from elevated share prices leading to profit-taking. Apple’s shares nosedived more than 8%, wiping off over $150 billion from the iPhone maker’s market cap.

Apart from Apple, the biggest tech shakeups were:

Zoom Video Communications: down by 9.97%

Microsoft: down by 6.19%

Alphabet: down by 5.12%

Amazon: down by 4.63%

Facebook: down by 3.76%

Doubts over additional stimulus from the US government may have also dampened sentiment, despite strong economic released from the country. US jobless claims declined by 130,000 to 881,000 in the latest week, while the IHS Markit services PMI rose to 55 in August, from July’s reading of 54.8.

The Dow Jones index tumbled 807.77 points to close at 28,292.73 on Thursday, while the S&P 500 shed 3.5% to reach 3,455.06. The tech-heavy Nasdaq 100 plummeted 5% to end the trading day at 11,458.10.

What are the estimates: The leading indicators that help predict the jobs report have been less encouraging this time. Although the ADP data showed the private sector adding 428,000 jobs in August, the numbers were far below the expected 950,000.

Although the latest initial jobless claims fell to 881,000, it will not benefit the nonfarm payrolls headline, as the report includes data prior to the 20th of the month.

  • The US is expected to recover 1.4 million jobs in August, following a gain of 1.76 million jobs in July.
  • Analysts expect the unemployment rate to ease from 10.25% to 9.8%.

What to watch: Investors will keep an eye on the US NFP report, which has historically led to steep price swings in the equity and forex markets. The covid-19 pandemic resulted in over 40 million Americans losing their jobs in March and April, with less than 50% back to work now. Around 27 million people are still receiving assistance in the form of jobless insurance, according to the Labor Department.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of the jobs report scheduled for release later in the day.

Context: The Canadian dollar slipped versus the greenback on Thursday following the sell-off on Wall Street. The loonie also recorded its largest decline in around two months, as investors focused on Canada’s widening trade deficit.

Details: With Canada being a major exporter of commodities, investors typically respond strongly to trade data.

Canada reported a trade deficit of $2.45 billion in July, with imports rising more than exports. Statistics Canada indicated a 12.7% rise in imports to C$47.9 billion and an 11.1% increase in exports to C$45.4 billion.

The lower oil prices also impacted market sentiment, with WTI crude oil futures declining 0.3% to $41.37 per barrel.

The loonie traded down by 0.7% to $1.3130, or 76.16 US cents, recording the biggest drop since June 24. The Canadian currency had climbed to around an eight-month high of 1.2990 on Tuesday.

What to watch: Markets await reports on employment change, unemployment rate and Ivey PMI from Canada. The Canadian economy, which created 418,500 jobs in July, is expected to add 275,000 jobs in August. The unemployment rate is expected to ease to 10.1% in August, from 10.9% in July.

Other Markets: European indices were trading lower at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index down by 0.8%, 1% and 1%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Mexico's car output, auto exports and foreign exchange reserves, Russia’s inflation rate as well as US Baker Hughes crude oil rigs.