4.05pm: US markets close lower awaiting non-farm payroll numbers
US markets closed lower on Thursday with investors nervously awaiting tomorrow’s non-farm payrolls numbers to see if the Fed’s aggressive interest rate moves are finally denting the jobs market.
By the close the Dow Jones Industrial Average was down 347 points, or 1.15%, to 29,926.47, the S&P 500 fell 39 points, or 1.03%, to 3,744.40, and the Nasdaq Composite slipped 75 points to 11,073.
Today’s rise in weekly jobless claims numbers sparked some hope that the Fed might take its foot off the pedal with regard to the pace of interest rate rises but that flies in the face of comments from Fed officials who are determined to slay inflation, whatever the cost.
Chicago Fed President Charles Evans was the latest to spell out the central bank's outlook on Thursday, saying policymakers expect to deliver 125 basis points of rate hikes before the year end as inflation readings have been disappointing.
Investors fear that by being too aggressive with rate rises that the Fed will provoke a recession, and a deep one at that.
"The market has been slowly getting the Fed's message," said Jason Pride, chief investment officer for private wealth at Glenmede in Philadelphia.
"There's a likelihood that the Fed with further rate hikes pushes the economy into a recession in order to bring inflation down," Pride said. "We don't think the markets have fully picked up on this."
12.05pm: US markets run flat midday
US indices saw the dollar come back into prominence, as investors weighed the toll taken by weakening jobless claims, higher energy prices and the US Federal Reserve looking to continue interest rate hikes.
At midday, the S&P 500 was down by 0.5% at 3,765, while the Nasdaq Composite was down by 0.3% at 11,119 and the Dow Jones was down by 0.6% at 30,093.
Joshua Mahony, senior market analyst at online trading platform IG, wrote in a report: “Quite how steadfast the Fed will be in the face of economic suffering could be tested soon enough, with today’s jump in unemployment claims bringing concerns ahead of Friday’s jobs report.”
The US dollar edged up on Thursday, up 0.7% higher, down from a 20-year peak of US$114.78 hit in late September. US benchmark treasury yields growth on Wednesday helped drive the greenback higher.
Mahony also noted that the OPEC oil production cut raises risks of prolonged inflationary pressures.
“Joe Biden has stated his disappointment over the surprise two million barrels per day production cut from OPEC+, with many seeing this as a Saudi decision to favour Russian interests over the West. With the Western world having to take drastic measures that will squeeze economic growth in a bid to drive down inflation, the timing of this production cut highlights a disregard for the interests of the US and Europe,” he wrote.
“Unfortunately, we are starting to see natural gas and crude oil gain ground, with fears around rising commodity prices likely to return as demand rises into the winter period.“
At noon, West Texas Intermediate was up 0.6%, selling at US$88.21 a barrel.
The major movers included Peloton, which rose slightly by 0.6% after it announced it would cut 12% of its remaining workforce, or around 500 jobs.
On the downside, General Electric fell by 1.6% on news it is laying off 20% of its workforce in the area of onshore wind power.
9.35am: Rise in unemployment claims
US stocks opened mixed on Thursday, rebounding from sharper declines in pre-market trading on the back of new jobless claims data from the Labor Department.
Initial jobless claims for the week ended October 1 came in at 219,000, above the consensus analyst expectation per Bloomberg of 204,000, but still at a historically low level signalling the continued strength of the American labor market.
City Index and Forex.com market analyst Fawad Razaqzada noted that there was no major fundamental justifications for the stock market bulls to be aggressive buyers right now.
“This is why we are seeing the indices fail to show significant follow-through each time we have a bounce,” he explained.
Razaqzada added that speculation the Fed would pivot its stance was unjustified.
"We have repeatedly seen inflation data exceeding expectations and the Fed has correspondingly responded by being even more hawkish with its rate increases and language,” he said.
“The labour market has remained very hot until now, but following some weakness this week, investors are expecting the monthly non-farm employment report to disappoint expectations this time, but will the Fed be too concerned about one month’s worth of jobs data?”
Just after the market opened, the Dow Jones Industrial Average had shed 77 points or 0.3% at 30,196 points, the S&P 500 was steady at 3,780 points, and the Nasdaq Composite had added 24 points or 0.2% at 11,172 points.
6.30am: Selling pressure
US stocks are expected to open lower on Thursday amid renewed attention on the gloomy economic prospects for the world’s biggest economy and beyond.
Futures for the Dow Jones Industrial Average were down 0.6% in pre-market trading, while those for the S&P 500 fell 0.7% and contracts for the Nasdaq-100 were 0.8% lower.
The recent run of economic data in the US was sturdy with the ISM services sector index pointing to bigger-than-expected growth. The ADP employment report also painted the picture of a strong labor market, with job creation continuing apace. The Federal Reserve is widely expected to continue hiking interest rates aggressively despite the threat to economic activity.
“Both figures did not match the idea that the Fed would slow its rate hikes, but the market reaction remained rather mild. Now all eyes are on Friday’s NFP (non-farm payroll) number, and wages growth data,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The pivotal non-farm payrolls data is expected to show continued resilience in the face of higher interest rates and elevated inflation. Consensus estimates point to a 275,000 rise in payrolls in September after a 315,000 increase the previous month.
Out today, initial jobless claims figures will also be in focus.
The Federal Reserve has delivered three 75 basis point interest rate hikes this year and is expected to keep on raising interest rates as it attempts to tackle runaway inflation but its moves are also expected to dampen growth. Investors fear that the US will be stuck in a prolonged recession as a result. They will be hoping that softer labor market data will dissuade rate setters from hiking interest rates aggressively.
Elsewhere, the World Trade Organisation’s gloomy estimates are also weighing on investors’ minds.
“The World Trade Organization (WTO) gave a scary forecast for the global trade next year,” said Ozkardeskaya.
The WTO estimated growth of 3.5% for global merchandise trade volumes this year but slashed its expectations for next year to 1% from its previous estimate of 3.4%, and warned that major central banks could overshoot by implementing interest rate hikes too aggressively and triggering recessions in some countries.
In energy markets, oil cartel OPEC cut its production target by 2 million barrels per day, prompting US president Joe Biden to call the reduction “shortsighted”.
Benchmark WTI crude oil futures were down 0.1% at $87.67 a barrel, while Brent crude futures were down 0.2% at $93.22 a barrel.
Contact the author at jon.hopkins@proactiveinvestors.com