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U.S. equity futures moved firmly lower in early Friday trading as investors looked to a crucial August jobs report that will both clarify the Federal Reserve’s rate path and provide a litmus test to concerns that economic growth is slowing into the autumn months.
Stocks ended lower Thursday, with the S&P 500 extending its September decline to 2.57%, following a mixed set of data releases that cast confusion over the state of the labor market.
A muted August reading of the ISM’s benchmark survey of activity in the services sector, the key driver of U.S. growth, also sowed concern that growth is sputtering under the weight of high Fed interest rates in a late-cycle economy.
That puts today’s August employment report in sharp focus for Wall Street, which is looking to establish the size of the Fed’s next rate cut, which would be the first in more than a year, and the pace and scope of further cuts heading into the final two meetings of the year.
At present, the CME Group’s FedWatch suggests a 41% chance of a half point reduction on September 18, but those odds could change quickly if today’s payroll report were to show any deviation from the Street’s current forecast.
Fed Chairman Jerome Powell is likely to use today’s August jobs report to define the central bank’s autumn rate path.
Olivier Douliery/Bloomberg via Getty Images
Analysts expect that employers added 164,000 new jobs to the economy last month, up from the July tally of 114,000, with the headline unemployment rate easing to 4.2%.
“The labor market continues to show signs of softening overall, but remains unlikely to fall apart completely,” said Dr. Selma Hepp, chief economist at CoreLogic. “The real question remains whether or not the Federal Reserve waited too long to begin to reduce rates in the effort to avoid recession and if a soft landing is indeed achievable.”
Bond markets have been expressing that very concern for much of the week, with rate-sensitive 2-year note yields falling to 3.717%, down more than 20 basis points on the month.
At the same time, growth-focused 10-year notes are down 23 basis points at 3.699% as investors move cash into safe-haven assets.
Related: Jobs report to signal timing and size of autumn Fed interest rate cuts
Heading into the start of the trading day on Wall Street, with the jobs data due at 8:30 am Eastern time, futures tied to the S&P 500 suggest a 37 point pullback at the opening bell.
The Dow Jones Industrial Average, meanwhile, is called 140 points lower while the tech-focused Nasdaq is set for a 2325 point decline amid another pullback in heavyweight chip stocks tied to new export controls floated by the Biden Administration.
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In Europe, the regional Stoxx 600 benchmark fell 0.43% in early Frankfurt trading following a downward revision for second quarter Eurozone GDP, while Britain’s FTSE 100 slipped 0.37%.
Overnight in Asia, the Nikkei 225 fell 0.72% in Tokyo in a follow-on move to last night’s Wall Street decline, while the region-wide MSCI ex-Japan benchmark edged 0.22% higher into the close of trading.
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