Growth Weary Investors Pin Hopes On Friday's Nonfarm Payroll Report

Alexander Garcia
05 Sep, 2024
Miami

Another month, and another scare of economic slowdown. 

Wall Street stocks declined for the third day in a row after growth worries resurfaced after a weak manufacturing report on Tuesday, followed by a weak private sector payroll growth update today. 

Investors are sensitive to growth slowdowns, but the labor market and the economy have been humming at above-average rates for more than three years, and at some point growth is going to slowdown. 

Global financial markets have been in a holding pattern since Wednesday, awaiting the nonfarm payroll data, and any slowdown in hiring is likely to further exacerbate market volatility. 

Stocks on Wall Street plunged on August 5th after the release of July nonfarm payroll showed a sharp deceleration to 114,000 from 179,000 in June. 

Investors are estimating that August nonfarm payroll growth will at least exceed the previous month additions. 

Tech stocks continued to decline for the third day in a row as investors worried about the economic slowdown amid mixed signals. 

The S&P 500 index and the Nasdaq Composite declined in early trading as investors sold high-flying tech and chip stocks amid growing worries of an economic slowdown and weakening labor market. 

Private sector employment expanded below market estimates, according to the latest data released by ADP. 

Private corporations added 99,000 new jobs in August, lower than 111,000 in the previous month, following two years of above-normal growth. 

"Moreover, job gains were flat at 4.8% for existing employees and increased to 7.3% for those who switched jobs, the data showed. 

"The job market's downward drift brought us to slower-than-normal hiring after two years of outsized growth.," ADP chief economist Nela Richardson said in a statement. 

Initial weekly jobless claims declined last week, the Labor Department reported Thursday. 

Weekly jobless claims dropped by 5,000 from the previous week to 227,000 in the week ending on August 31. 

The initial claims fell to a new 7-week low, easing fears of a potential increase in jobless claims amid moderating labor market conditions. 

Continuing claims, which lag by one week, dropped by 22,000 to 1.838 million in the previous week. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.6% to 5,485.54, the Nasdaq Composite fell 0.1% to 17,066.51, and the Russell 2000 index fell 0.9% to 2,126.40. 

The yield on 2-year Treasury notes edged lower to 3.73%, 10-year Treasury notes decreased to 3.74%, and 30-year Treasury bonds inched lower to 4.04%.

WTI crude oil increased $0.15 to $69.05 a barrel, and natural gas prices edged up 12 cents to $2.27 a thermal unit.

Gold rose by $11.15 to $2,507.03 an ounce, and silver increased by $0.42 to $28.68.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 101.15.

 

U.S. Stock Movers

Topgolf Callaway Brands increased 1.1% to $10.90 after the company said it plans to separate into two companies. The company will separate its golf equipment and lifestyle business from its entertainment business. 

C3.ai declined 11.5% to $20.42, and the company reported sharply lower-than-expected subscription revenue in its latest quarter. 

Total revenue in the fiscal first quarter increased 21% to $87.2 million from $72.4 million, and subscription revenue advanced 20% to $73.5 million from $61.4 million a year ago. 

The weaker-than-expected growth in its subscription revenue negatively impacted the stock. 

Net loss in the quarter shrank to $62.8 million from $64.3 million, and diluted loss per share fell to 50 cents from 56 cents a year earlier. 

AeroVironment declined by 3.5% to $186.60 despite the defense contractor reporting better-than-expected revenue and earnings in the fiscal first quarter. 

Revenue in the first quarter ending in July increased by 24% to $189.5 million from $152.3 million, net income edged slightly lower to $21.2 million from $21.8 million, and diluted earnings per share fell to 75 cents from 84 cents a year ago. 

 

European Markets On Hold Amid Global Rate Path and Economic Growth Uncertainties 

European markets lacked direction, and investors debated economic growth outlook and future interest rate path. 

Benchmark indexes in Paris, London, and Frankfurt traded sideways, and investors reviewed the latest updates on German factory orders and retail sales in the Euro Area.

Jittery investors have been selling stocks amid growing anxieties about the economic growth outlook in the U.S., China, and the Euro Area. 

Investors are on edge after a private manufacturing survey showed weakening activities for the fifth month in a row, and job openings also dropped to the level last seen in 2021. 

In the eurozone, consumer price inflation fell closer to the 2% target level set by the central bank largely because of the decline in energy prices, and consumer spending remains depressed amid high cost of living and weak wage growth. 

Moreover, consumer demand remains weak in China, once the key driver of demand for luxury goods from Europe, amid a protracted slump in the property market and growing uncertainty in the labor market. 

 

Large Transportation Orders Lift Germany's Factory Orders In July 

Closer to home, Germany's factory orders rose 2.9% in July, following an upwardly revised 4.6% increase in June, the Federal Statistical Office, or Destatis, reported Thursday. 

Orders unexpectedly rose for the second consecutive month, driven by an 86.5% jump in orders for transportation equipment and an 18.6% rise in electrical equipment. 

While domestic orders were unchanged in the month, orders from other countries increased 5.1%, driven by a 5.9% rise in orders from the eurozone and a 4.6% advance from outside the currency union. 

Incoming orders on an annual basis rose 3.7%, and excluding large orders, they fell 0.4% from June. 

 

Lack of Retail Sales Growth Highlights Weak consumer demand 

Retail sales in the Euro Area in July increased 0.1% from the previous month when sales were revised to a decline of 0.4%, Eurostat reported Thursday. 

The fuel sales declined 1% and outweighed the increase of 0.4% in food, beverage, and tobacco product sales and the 0.1% rise in non-food product sales. 

Euro Area retail sales in July declined 0.1% from a year ago as consumers limited purchases to basic items amid a cost of living crisis and high interest rates. 

 

Europe Indexes and Yields

The DAX index increased by 0.02% to 18,595.51; the CAC-40 index fell by 0.9% to 7,431.56; and the FTSE 100 index declined by 0.3% to 8,241.71. 

The yield on 10-year German bonds edged lower to 2.22%, French bonds inched down to 2.95%, the UK gilts edged down to 3.94%, and Italian bonds decreased to 3.59%.

The euro edged down to $1.10; the British pound inched higher to $1.31; and the U.S. dollar strengthened to 84.62 Swiss cents.

Brent crude increased $0.01 to $72.67 a barrel, and the Dutch TTF natural gas rose by €0.34 to €35.96 per MWh. 

 

Europe Stock Movers

Volvo AB Class B increased by 0.2% to SEK 261.70 despite the automaker lowering its sales and profit estimates. 

Associated British Foods decreased 5% to 2,365.18 pence after the parent company of Primark said wet weather negatively impacted its second-half retail sales. 

Vistry Group PLC jumped 5.6% to 1,392.76 pence after the UK-based home builder said it plans to buyback £130 million worth of its own stock. 

Churchill China declined 9.2% to 981.0 pence after the UK-based pottery company reported a sharp decline in revenue in its first half, driven by weakness in sales in the UK and Europe. 

Revenue plunged 7.8% to £40.6 million, net income increased 3.1% to £3.5 million, and earnings per share rose 2.8% to 32.8 pence from 31.9 pence a year earlier. 

The company announced to increase its interim dividend by 4.5% to 11.5 pence from 11.0 pence a year ago. 

Ashmore Group gained 6.8% to 184.70 pence, and the emerging markets-focused fund manager reported slightly better-than-expected annual results.

 

Rising Wages and Yen Keep Stocks in Japan In Check 

Market sentiment in Tokyo remained negative, benchmark indexes extended weekly losses after the yen edged higher, and the latest jobs data supported the case for a rate hike. 

The Nikkei 225 stock average decreased 1%, and the broader Topix index fell 0.5%. 

Nominal wage growth in July slowed from the previous month, the Ministry of Health, Labour, and Welfare reported Thursday. 

The nominal cash wage increase slowed to 3.6% in July from a 4.5% growth in June, which was the largest since 1997. 

Wages have been rising faster than the core inflation rate of 2.7% for the second month in a row, supporting the case for the Bank of Japan to increase interest rates at the end of its policy meeting later in the month. 

Mining industry wages increased 14.8% and construction wages advanced 9.6%, but wages in information and communication fell 0.8% and transportation and postal services decreased 0.7%.

Nominal wages have been on the rise for 30th month in a row, but real wages have been on the rise only for the last three months. 

The Japanese yen edged higher to 143.17 against the U.S. dollar and extended this week's advance to 2%. 

 

Japan Stock Movers 

The Nikkei 225 stock average declined 1% to 36,678.0, and the broader Topix index fell 0.5% to 2,620.05. 

Tech stocks declined in Tokyo for the third session in a row amid persistent weakness on Wall Street. 

Tokyo Electron decreased 2.5% to ¥22,425.0, Advantest Corp. dropped 2.9% to ¥5,950.0, SoftBank Group edged up 0.6% to ¥7,835.0, and Screen Holdings fell 1% to ¥9,575.0. 

Banks were in focus after the yen gained against the U.S. dollar amid rising expectations of a rate hike later in the month. 

Mitsubishi UFJ Financial Group decreased 1.5% to ¥1,485.50, Sumitomo Mitsui declined 1% to ¥9,324.0, and Mizuho Financial Group fell 0.4% to ¥2,962.0. 

Mitsubishi Logistics gained 5.4% to ¥5,157.0, Hitachi Zosen Group gained 2.9% to ¥971.0, and GS Yuasa Corp. gained 4.2% to ¥2,870.0. 

Toray Industries and Mitsubishi Chemical Group advanced more than 3%. 

 

China Indexes Wavered; Property Developers, Oil Producers and Tech Stocks In Focus 

Stocks in Hong Kong and mainland China lacked direction after falling in the previous three trading sessions. 

The Hang Seng index decreased 0.6% and extended the three-day loss to over 3% after soaring 4% in August. 

The CSI 300 index traded around the flatline amid a lack of interest from retail investors on the mainland.

The August rally stalled over the last three days as worries of an economic slowdown in the U.S. resurfaced following a weak reading on the manufacturing sector. 

The latest update on the U.S. labor market also showed weakening market conditions after new job openings shrank in July to the lowest level since January 2021. 

The number of job openings declined 237,000 to 7.673 million from the downwardly revised 7.91 million in June, the U.S. Bureau of Labor Statistics reported Wednesday. 

Amid widespread belief that the Federal Reserve is likely to lower its key lending rates by at least 25 basis points at the end of a two-day policy meeting on September 18,. 

The move by the Federal Reserve would also lead to a similar rate cut in Hong Kong, as the city maintains its currency peg with the U.S. dollar. 

Property developers in Hong Kong advanced in the hopes that the interest rates are heading lower in the near future, supporting a rebound in property sales. 

 

China Stock Movers 

The Hang Seng index decreased 0.6% to 17,359.37, and the CSI 300 index edged down 0.01% to 3,251.83. 

Oil producers were in focus for the third day in a row amid weakening crude oil prices in international markets. 

Crude oil prices dropped below $70 a barrel and hovered near $69.35 amid demand growth worries in the U.S. and China and rising supply from OPEC+ countries. 

CNOOC decreased 0.7% to HK $19.74, Petro China fell 3.7% to HK $6.27, and China Petroleum and Chemical Corp. declined 6.5% to HK $4.63. 

Property developers advanced in the hopes of rate cuts in the near future. 

Sun Hung Kai Properties gained 2% to HK $75.25, Henderson Land Development increased 1.8% to HK $23.70, and CK Hutchison Holdings added 2.2% to HK $42.90. 

Tech stocks remained under pressure for the fourth day in a row amid weakness in semiconductor stocks and online platforms. 

Alibaba Group was in focus after the e-commerce platform operator said it may consider accepting payments originating on the WeChat service operated by the rival Tencent Holding. 

Tencent Holding declined 0.2% to HK $369.0, Alibaba Group decreased 0.6% to HK $79.60, JD.com 1.9% to $103.80, and Meituan fell 0.4% to HK $118.80.