Investors Look Ahead to Nonfarm Payrolls Report, Crude Oil Prices Dropped to 5-month Low

Barry Adams
06 Dec, 2023
New York City

Stocks lacked direction in early trading, and investors reviewed the latest update on the labor market, indicating falling inflation.

Private payrolls rose less than expected in November, confirming the cooling trend, and investors are looking forward to the release of nonfarm payrolls, jobless rates, wages, and jobless claims updates later in the week.

Private payrolls rose 103,000 in November, below the downwardly revised 106,000 increase in October, the ADP reported Wednesday.

The ADP employment series focuses on private employment, and the volatile monthly update is subject to several revisions.

The latest job data raised hopes that policymakers are more likely to engineer a soft landing and simultaneously cool inflation to the target rate of 2% and slow economic growth while avoiding a recession.

Economists surveyed by Ticker.com are anticipating nonfarm payrolls to increase by 175,000 in November, faster than the 150,000 increase in September.

The Federal Reserve has increased rates 11 times between March 2022 and June 2023, and the lagged effect of higher rates is visible in the slowing hiring trend in the labor market.

Job openings dropped to a 30-month low in October as employers trimmed new job announcements.

Job openings fell sharply in October after employers across the nation in several industries curtailed announcements for new hires.

The number of job openings declined by 617,000 to 8.7 million, the U.S. Bureau of Labor Statistics reported Tuesday.

Despite the recent market doldrums, market indexes are set to close higher in the quarter and year following a strong rally over five consecutive weeks.

 

U.S. Trade Deficit Expands Slightly In October 

The U.S. goods and services deficit rose in October from the previous month after exports edged lower and imports edged up slightly, the Bureau of Economic Analysis reported Wednesday.

Exports declined 1% to $258.8 billion, and imports rose 0.2% to $323.0 billion, resulting in an increase of 5.1% in the deficit to $64.3 billion.

The decline in exports was driven by the weakness in sales of diamonds and jewelry, pharmaceutical preparations, passenger vehicles, buses and accessories, and travel.

Meanwhile, sales rose for organic chemicals, financial services, and transport services.

Imports were driven by the increase in computers, drilling and oil field equipment services, and travel services, offset by a slight decline in passenger cars.

In the month, the goods deficit increased by $3.5 billion to $89.8 billion, and the services surplus rose by $0.4 billion to $25.5 billion.

The trade deficit in goods with China, not adjusted for seasonal factors, edged slightly lower to $25.5 billion in October from $28.5 billion in September and reached $235.7 billion in the year so far.

 

U.S. Indexes and Yields

The S&P 500 index gained 0.1% to 4,571.39, and the Nasdaq Composite increased 0.3% to 14,249.41.

The yield on 2-year Treasury notes decreased to 4.60%, 10-year Treasury notes inched lower to 4.14%, and 30-year Treasury bonds decreased to 4.25%.

Crude oil decreased $2.71 to $69.59 a barrel, and natural gas prices fell 5 cents to $2.65 a thermal unit.

Gold increased $6.50 to $2,026.25 an ounce as investor expectations shifted. The Federal Reserve is more likely to cut rates sooner than expected in 2024. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 104.10.

 

U.S. Stock Movers

Toll Brothers increased 2% to $89.0 after the luxury home builder reported better-than-expected quarterly results.

Revenue in the fiscal fourth quarter ending in October declined to $3.02 billion from $3.7 billion, net income decreased to $445.5 million from $640.5 million, and diluted earnings per share dropped to $4.11 from $5.63 a year ago.

The backlog of homes at the end of October declined 19% to 6,578 and the value of the backlog fell 22% to $6.95 billion.

During the quarter, the company repurchased approximately 4.3 million shares at an average price of $75.70 per share, for a total of $325.5 million.

In the fiscal year, the home builder repurchased approximately 7.9 million shares at an average price of $72 per share, for a total purchase price of $565.9 million.

The home developer estimated home deliveries in the fiscal 2024 first quarter to range between 1,800 and 1,900 units and the average delivery price per unit to range between $985,000 and $1.05 million.

MongoDB decreased by 5% to $412.0 after the database developer reported quarterly results.

Total revenue in the third quarter increased 30% from a year ago to $432.9 million, and subscription revenue advanced 30% to $418.3 million.

Net loss in the quarter shrank to $29 million from $84 million, and diluted loss per share decreased to 41 cents from $1.23 a year ago.

The company guided fiscal fourth quarter revenue to range between $429 million and $433 million, adjusted earnings between $35 million and $38 million, and adjusted earnings per share between 44 cents and 46 cents.

Box Inc. fell 12.2% to $23.41 after the cloud-based content management software developer reported a muted increase in quarterly revenues and earnings.

Revenue in the fiscal third quarter increased 5% to $261.5 million from $249.9 million, net income increased to $5.64 million from $4.98 million, and diluted earnings per share rose to 4 cents from 3 cents a year ago.

The company estimated fiscal year 2024 revenue between $1.037 billion and $1.039 billion, an increase of 5% at the top of the range, and net income between 15 cents and 16 cents, including an unfavorable exchange rate impact of 17 cents.

 

European Markets Advanced, New Record High In DAX Index 

European markets advanced and extended the previous week's gain, and bond yields dropped to six-month lows.

Benchmark indexes in Frankfurt, Paris, and London extended solid gains from the previous session after market sentiment shifted in favor of rate cuts.

German bond yields dropped below 2.3%, and Italian bonds hovered at 4% on expectations that the European Central Bank is likely to pivot from rate hikes to rate cuts earlier than expected.

Last month, the European Central Bank president Christine Lagarde lowered rate-cut expectations and said talks of rate cuts are "premature."

Despite the central bank's warning, investors held on to the belief that rates are likely to begin to decline in the second quarter of 2024, following the steady decline in energy prices over the last six months.

  

Europe Indexes and Yields

The DAX index increased 0.9% to 16,678.94, the CAC-40 index rose 0.8% to 7,444.17, and the FTSE 100 index advanced 0.5% to 7,528.21.

The yield on 10-year German bonds decreased to 2.25%; French bonds traded lower to 2.81%; the UK gilts declined to 4.05%; and Italian bonds inched lower to 4.00%.

The euro traded lower to $1.079, the British pound inched lower to $1.259, and the U.S. dollar eased to 87.52 Swiss cents.

Brent crude decreased $2.74 to $74.43 a barrel, and the Dutch TTF natural gas increased by €1.46 to €39.58 per MWh.

 

Europe Stock Movers

TUI AG soared 10.5% to €6.57 after the tour operator reported operating profit that more than doubled in 2023.

Operating profit in the fiscal year 2023 ending in September surged 139% to €977 million from €568 million a year ago.

Revenue in the fourth quarter increased 11% to €8.5 billion, and operating profit jumped by €164 million to €1.203 billion.

For the full year 2023, the company swung to a profit of €306 million from a loss of €277 million a year ago.

The tour operator also lowered its debt to €1.3 billion from €3.4 billion, following strong operating cash flow and a successful €1.8 billion rights offering in April.

The tour operator forecasted revenue in fiscal 2024 to increase by "at least 10%" and underlying operating profit by "at least 25%."

British American Tobacco dropped 7.8% to 2,291.50 pence after the company reiterated its full-year 2023 earnings per share outlook.

The maker of cigarette and smokeless tobacco products generates strong cash flow, and the company said it is making progress in lowering its debt.

"BAT is a highly cash-generative business, and we expect to deliver close to 100% operating cash flow conversion in 2023.

We are making progress towards reaching the middle of our guided 2-3x adjusted net debt/adjusted EBITDA leverage range and expect to be around 2.7x by year end," said the company in an update to investors.

The company said it plans to generate more than 50% of its revenue from non-combustibles by 2035.

Mining companies were among the leading gainers after metal prices advanced in London trading.

Glencore increased 1.8% to 446.20 pence, Antofagasta gained 1.5% to 1,439.50 pence, and Anglo American advanced 2.1% to 2,199.50 pence.