The stock market was slipping back from record high territory Friday as investor attention turned squarely to the key U.S. jobs report later in the day.
Futures for the Dow Jones Industrial Average indicated an open 30 points lower, after the index slipped 33 points Thursday to close at 36,124. Futures for the S&P 500 and Nasdaq —which both rose Thursday to all-time highs—signaled a similar start.
Markets could use the U.S. jobs report Friday as a catalyst—especially in the wake of the Federal Reserve announcing an end to its bond-buying program but noting that it was keeping a close eye on the labor market. Wall Street is expecting around 450,000 nonfarm payrolls jobs to have been added in October.
“If realized, that +400k number would be the strongest jobs growth in three months. We’ve had some fairly positive labor market data in advance of the jobs report too,” said Jim Reid. a strategist at Deutsche Bank. The ADP report of private payrolls Wednesday and Thursday’s weekly initial jobless claims for the week of Oct. 30 both exceeded expectations of labor market strength.
“The Fed made it clear this week that labor market evolution after the Delta variant will be a key determinant in the future path of monetary policy,” Reid added.
Markets have taken in stride the decision this week by the Fed to begin slowing, or tapering, its Covid-19 pandemic-era program of monthly bond purchases, which adds liquidity to markets. The Fed said Wednesday that it would taper its $120 billion monthly purchases by $15 billion each month, starting in November, with a view to ending the program of quantitative easing in June 2022.
With fears surrounding inflation and economic growth still on investors’ radar, Fed Chair Jerome Powell also signaled that the central bank’s tapering would be sensitive to economic conditions, particularly the job market.
“While elevated inflation has prompted concerns of premature tightening that chokes off growth, the Fed’s patience should allay those fears,” said Mark Haefele, the chief investment officer at UBS Global Wealth Management. “A sharp rise in yields and a tightening in financial conditions sufficient to unsettle markets still look unlikely.”
Hong Kong trading was hit by renewed fears of the heavily indebted Chinese property sector. Shares in developer Kaisa Group Holdings (1638.H.K.) were suspended in Hong Kong after it missed payments on wealth products and raised liquidity concerns. Units of China Evergrande (3333.H.K.), the struggling real estate group at the center of property woes, face payment deadlines for offshore bond coupons due tomorrow.
In commodity markets, oil prices were in the spotlight for a second day amid indications of increasing supply. Futures for international benchmark Brent crude were trading hands around $80.60, while U.S. oil futures for West Texas Intermediate fell below $80, hovering around $79.30. Brent was as high as $84 Thursday, with WTI moving above $83 before the move lower Friday.
The OPEC+ group of national producers—including Saudi Arabia and Russia—fell short of agreeing to increase production in December more than planned, but U.S. crude supply data this week showed that oil stocks were far higher than expected.
Future U.S.-Iran talks, and the prospect of a glut of Iranian crude hitting markets, added to the pressure on oil, as did a statement from the U.S. National Security Council that the U.S. was considering a range of tools to deal with elevated prices.
“Potentially, oil’s correction lower, helped along by lower coal and natural-gas prices, could still have some way to go,” said Jeffrey Halley, an analyst at broker Oanda. “The absence of heavy Asian buying today on this dip suggests they feel the same.”
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