Momentum Lifts Averages Higher, Reports Confirm Tight Labor Market Conditions

Barry Adams
01 Jun, 2023
New York City

Market indexes picked up pace in early afternoon trading and scaled higher as investors digested the latest data on the jobs market. 

Private sector payrolls expanded at a slower pace in May and weekly jobless claims edged up slightly but stayed significantly below the elevated level in March. 

The tight labor market conditions and broader optimism about the economy dominated trading sentiment, despite the weak manufacturing survey data. 

The U.S. manufacturing purchasing managers' survey showed the index tracking the confidence in the sector declined for the seventh month in a row in May. 

The ISM PMI decreased to 46.9 from 47.1 in April, and indexes tracking new orders, backlogs and inventories contracted in the month. 

On Wall Street, buyers returned after the U.S. House passed  the debt ceiling agreement after months of protracted and contentious negotiations that brought the nation closer to its first ever debt default. 

The so-called Fiscal Responsibility Act passed 314-117, with 165 Democratic votes and 149 Republican votes. 

The bill is expected to face a far smoother transition in the upper chamber of the Democratic-controlled Senate and sent to President Biden's signature, just in time to avert the expected default date June 5. 

With the anticipated ratification of the debt ceiling agreement, market focus is shifting to rate path and the Fed's action at its next meeting on June 14. 

 

Private Payrolls Growth Slowed In May 

Private payrolls expanded in May at a slower pace, according to the latest survey by ADP. 

Employers added 278,000 jobs in May, compared to a downwardly revised 291,000 additions in April. 

The services sector added 168,000, led by 208,000 gains in leisure and hospitality and 32,000 in trade, transportation, utilities.

Payrolls were trimmed in the financial sector by 35,000, education and health by 29,000, information by 15,000 and professional and business by 5,000. 

However, the goods-producing industry added 110,000 jobs, driven by gains in mining of 94,000 and construction 64,000 while manufacturing lost 48,000 jobs. 

Job gains were limited to leisure and hospitality, construction and mining industries while manufacturing and finance trimmed positions. 

"This is the second month we've seen a full percentage point decline in pay growth for job changers. 

Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring," said ADP's chief economist  Nela Richardson.  

 

U.S. Jobless Weekly Claims Edged Higher 

Initial claims of jobless benefits increased by 2,000 from the previous week to 232,000 in the week ending on 232,000. 

The jobless claims were below the levels seen in March, indicating that tight labor market conditions are likely to persist for months ahead. 

The four week moving average, which removes the weekly volatility, eased 2,500 to 229,500. 

On a seasonally unadjusted basis, claims rose 5,296 to 207,941 and Ohio and New York logged an increase of 2,133 and 1,277 respectively.    

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.9% to 4,217.20 and the Nasdaq Composite increased 1.2% to 13,089.17. 

The yield on 2-year Treasury notes decreased to 4.37%, 10-year Treasury notes edged down to 3.59% and 30-year Treasury bonds held at 3.82%. 

Crude oil increased $2.64 to $70.73 a barrel and natural gas prices increased 9 cents to $2.17 a thermal unit. 

In May, crude oil declined 9.5% and plunged 39% from a year ago.  

 

U.S. Stock Movers

Nordstrom Inc increased 3% to $15.76 after the company reported better-than-expected quarterly results. 

Salesforce Inc declined 5% to $212.38 after the company highlighted softness  in large account sales activities. 

Macy's  Inc declined 4.8% to $12.94 after the company reported weak quarterly results and lowered its annual outlook citing macroeconomic headwinds. 

The company lowered its full-year revenue estimate to between $22.8 billion from $23.2 billion from between $23.7 billion and $24.2 billion in the previous estimate. 

Dollar General Corp plunged 18.4% to $164.40 after the deep discount retailer estimated same store sales in the current year between 1% and 2%, weaker-than-estimated. 

 

European Markets Rebounded, Inflation Eased, Jobless Rate Fell to New Low

European markets rebounded after the jobless rate fell to a new low and inflation eased to the level last seen thirteen months ago. 

Inflation pressures eased after energy prices declined and food inflationary pressures weakened, supporting the case for the central bank to consider pausing aggressive rate hikes. 

Stocks responded positively to tight labor market conditions after the jobless rate dropped to a new record low since record keeping began in 1995. 

Market optimism was bolstered after the debt ceiling agreement was passed by an overwhelming majority in the U.S. House of Representatives, raising hopes of smoother passage in the Senate before the critical deadline on June 5. 

Crude oil hovered around the recent lows after a private survey in China showed the manufacturing sector unexpectedly expanded in May. 

The Caixin China Manufacturing General Manufacturing PMI increased to 50.9 in May from 49.5 in April. The survey focuses more on companies in the private sector.  

The reading above 50 indicates expansion and below shows a contraction.  

A day ago, an official manufacturing industry survey, which is heavily focused on large government controlled enterprises, showed a contraction. 

 

Eurozone Inflation Eased In May 

The consumer price inflation in the Euro Area slowed in May after energy prices fell and food inflation slowed, the Eurostat reported Thursday. 

Core inflation, which excludes food, energy, alcohol and tobacco, eased to 5.3% from 5.6% in April.

Consumer price index eased to 6.1% in May from 7.0% in April and fell to the slowest pace since February 2022. 

Energy prices declined 1.7% in the month after rising 2.4% in April and food, alcohol and tobacco inflation eased to 12.5% from 13.5%, non-energy industrial goods inflation weakened to 5.8% from 6.2% and service inflation ebbed to 5.0% from 5.2%. 

 

New Record Low Jobless Rate In Eurozone 

The euro area seasonally-adjusted unemployment rate declined to 6.5% in April from 6.6% in March and from 6.7% from a year ago, the statistical office of the European Union or Eurostat reported Thursday. 

The jobless rate in the currency union dropped to the lowest level since record keeping began in 1995. 

In the currency union, the number of unemployed fell 33,000 from the previous month to 11.088 million and declined 203.000 from a year ago. 

Youth unemployment, those younger than 25, declined to 13.9% in April from 14.0% in March and about 2.2 million were unemployed. 

Of the largest economies in the Euro Area, Germany recorded a jobless rate of 2.9%, in France 7.0%, in  Italy 7.8% and Spain 12.7%. 

 

Europe Indexes & Yields 

The DAX index increased 1.1% to 15,838.66, the CAC-40 index rose 0.7% to 7,150.96, and the FTSE 100 index advanced 0.5% to 7,481.20.

The yield on 10-year German Bunds inched higher to 2.29%, French bonds traded higher to 2.87%, the UK gilts held at 4.19% and Italian bonds decreased to 4.08%.

The euro edged lower to $1.07, the British pound to $1.245 and the Swiss franc to 90.82 cents.

Brent crude decreased $0.38 to $72.20 a barrel and the Dutch TTF natural gas increased €2.80 to €24.05 per MWh.

 

Europe Stock Movers 

Lonza Group AG increased 1.2% to CHF 576.20 after the Swiss manufacturing company agreed to acquire Holland-based Synaffix, the developer of antibody drug conjugates.  

FLSmidth & Co advanced 2.7% to DKK 296.80 after the Danish company agreed to acquire the U.S. based Morse Rubber, the maker of rubber products for marine, industrial and mining applications. 

BAE Systems Plc increased 1.1% to  939.20 pence after the company said it has hired Morgan Stanley to launch the repurchase of £500 million of  its own stock.  

Safran SA advanced 1.5% to €137.46 after the company said it entered into exclusive negotiation with Air Liquide SA to purchase its aeronautical oxygen and nitrogen business, excluding cryogenic business related to marine applications. 

Dr Martens PLC dropped 8.5% to 143.0 pence after the UK-based boot maker said its operating margin is likely to fall this year. 

Revenue in the fiscal year 2023 ending in March increased 10% to £1.0 billion but profit after-tax declined 28% to £128.9 million from £181.2 million a year ago. 

The company recommended a final dividend of 4.28 pence, matching the previous year and increasing the total dividend to 5.84 pence, an increase of 6% from a year ago. 

The company estimated operating earning margin to fall between 1% and 2% because of the need to invest in the supply chain to support long term sales growth.