North American Morning Briefing: Stock Futures Edge Up Ahead of Jobs Report

09/03/2021 | 06:09am

MARKET WRAPS

Watch For:

U.S. Employment Report for August; U.S. ISM Report on Business Services PMI for August.

Opening Call:

Stock futures edged higher ahead of the August employment report, which will indicate the strength of the labor market recovery.

The fresh jobs figures, due at 8:30 a.m. ET, could influence the Federal Reserve's timetable for scaling back stimulus policies that have supported markets during the pandemic. A recent uptick in Delta variant Covid-19 infections has caused some investors to expect that the U.S. economic recovery may pause and cause the Fed to slow the reduction of easy-money policies.

"For now, the binding constraint of what they do is the labor market. That payroll is really the thing to watch in seeing how quickly we get through that labor market slack and approach actual rate hikes," said Hani Redha, a portfolio manager at PineBridge Investments.

Economists surveyed by The Wall Street Journal estimate that the U.S. economy added 720,000 jobs in August and that the unemployment rate fell to 5.2%.

Fresh figures on activity in the U.S. services sector for August are also due. Private data firm IHS Markit will release results from its survey of purchasing managers in the U.S. services sector at 9:45 a.m., and the Institute for Supply Management will release its services index at 10 a.m.

Overseas, the Stoxx Europe 600 index edged lower. Shares of emerging-markets asset management firm Ashmore Group fell 4.6% in London trading after it posted full-year results that showed net revenues were down.

In Asia, Japan's Nikkei 225 jumped almost 2.1% after Japanese Prime Minister Yoshihide Suga said he wouldn't seek re-election as ruling-party leader.

Investors cheered comments from potential successors who proposed big economic-stimulus programs to lift Japan out of sluggishness caused by repeated Covid-19 waves.

Other Asian indexes closed with mixed performance. China's Shanghai Composite and Hong Kong's Hang Seng both fell. Alibaba Group Holding shares fell 3.5% in Hong Kong after the company vowed to spend the equivalent of $15.5 billion fostering social equality.

Forex:

The dollar traded flat as investors turn cautious before the release later Friday of the U.S. nonfarm payrolls report for August, which could influence the Federal Reserve's decision on when it will start tapering asset purchases.

The market seems to have already priced in a slowdown in jobs growth in August, Unicredit analysts say. "Nonetheless, a lower number (we expect a 700,000 reading) may still drag the USD down further after the DXY index moved back below the August lows at around 92.50."

That could see EUR/USD rise above the key 1.19 level and GBP/USD rally further beyond 1.38, the analysts said.

Speculation that the European Central Bank could scale back its pandemic bond purchases at Thursday's meeting might support the euro ahead of the event, ING said.

"Assuming the U.S. nonfarm payrolls report is not too strong today, we favor EUR/USD nudging up to resistance at 1.1900--but that might prove a tough nut to crack," ING analysts said.

Bonds:

In bond markets, the yield on the 10-year Treasury note ticked up to 1.295% from 1.293% Thursday.

The ECB's communication at Thursday's meeting will aim to avoid misinterpreting an anticipated reduction in the Pandemic Emergency Purchase Programme as tapering, said Barclays' analyst Silvia Ardagna.

Barclays expects the ECB to announce a reduction in PEPP purchases for the fourth quarter due to an improved macroeconomic backdrop, along with an upgrade to growth and inflation forecasts, she said.

Barclays expects an announcement on the size of the regular Asset Purchase Programme for the post-PEPP era to come later in the fourth quarter, Ardagna said.

"We expect the ECB President will signal that the APP programme could be recalibrated if the PEPP ends in March 2022 and that, if needed, PEPP could also be extended beyond that date," she said.

Commodities:

Oil wavered around flat after the unexpectedly severe impact of Hurricane Ida prompted traders to buy, DNB Markets' Helge Andre Martinsen said.

With 1.7 million barrels a day of production capacity remaining offline on Thursday, "the crude oil inventory build caused by the hurricane could thus turn out to be more moderate than anticipated," Commerzbank's Carsten Fritsch said.

Investors have sold holdings in gold exchange-traded funds in the build-up to the U.S. jobs report due later.

Gold ETFs tracked by FactSet had outflows of approximately $185 million between Monday and Thursday, according to the data provider.

"ETF investors remain on the sidelines in the run-up to this important data publication and sold shares once again yesterday," said Daniel Briesemann at Commerzbank.

FactSet's data shows gold ETFs saw just one day of net positive inflows in July and August, but 19 days of net outflows. Gold price movements have been lackluster in recent weeks.

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