North American Morning Briefing: Stock Futures Inch Up Ahead of Jobless Claims, Trade Data

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MARKET WRAPS

Watch For:

U.S. Trade for July; U.S. Weekly Jobless Claims; U.S. 2Q revised Productivity & Costs; Canada Trade for July.

Opening Call:

Stock futures edged higher Thursday ahead of fresh data on the labor market and the trade balance that could provide insights into the pace of the economic recovery.

Stocks have ground higher this week as investors weighed strong corporate earnings and low interest rates against indicators that growth may be slowing in some parts of the world.

Money managers say they are awaiting the jobs report for August, due Friday, for more cues on when and how the Federal Reserve may taper its bond purchases. The central bank has signaled that the labor market’s recovery is a factor in its monetary policy decisions.

“The confluence of a strong recovery at the same time as very low interest rates and maybe the peak of policy accommodation: if you put those all together, it is a very powerful mix for risky assets,” said Bill Papadakis, macro economist at Lombard Odier. “If you consider the alternatives in which investors could put their money today-with interest rates where they are-equities are often the one option for somewhat better returns.”

The latest data on jobless claims, a proxy for layoffs, is due at 8:30 a.m. ET. Economists estimated first-time filings for unemployment insurance held near pandemic lows in late August. The U.S. trade balance for July will also be released at 8:30 a.m., and likely narrowed as American consumers shifted spending toward in-person services and away from goods.

“We’re in an environment where bad news is sort of good news,” said Olivier Marciot, investment manager at Unigestion. “Every time the situation deteriorates on the macro front, it is making investors hopeful that central bank accommodation will be here for longer.”

Semiconductor and software developer Broadcom and information technology company Hewlett Packard Enterprise are scheduled to post earnings Thursday after markets close.

Forex:

The dollar’s drop after ADP’s U.S. private payrolls report missed forecasts illustrates the currency’s fragility to labor market data and means big moves could happen following Friday’s official jobs figures, Commerzbank said.

The dollar is sensitive to jobs data as a significant recovery in the labor market is a necessary condition for raising interest rates, Commerzbank currency analyst Ulrich Leuchtmann said.

“And without that the dollar should struggle to appreciate,” he said.

Investors who hold active dollar positions should “fasten their seatbelts” when the Labor Department’s U.S. nonfarm payrolls report is released Friday, he said.

The price of bitcoin rose above $50,000, adding 3.5% from its level at 5 p.m. ET Wednesday.

The euro could extend its rise against the dollar, supported by recent remarks from European Central Bank officials about reducing stimulus and the risk of a weak U.S. nonfarm payrolls report on Friday, ING said.

“With USD that may stay broadly offered into tomorrow’s NFP, EUR/USD may approach the late July 1.1890 highs today,” ING analysts said.

“If payrolls eventually come on the soft side, a break above 1.1900 may well be on the cards.”

ECB member Robert Holzmann said it was time to start debating the tapering of pandemic bond purchases and ECB member Klaas Knot said he expects the bank to start reducing purchases at the September 9 meeting.

Bonds:

The yield on the benchmark 10-year Treasury note ticked down to 1.299% from 1.301% on Wednesday.

Comments by ECB officials pointing to a possible reduction in monetary stimulus “could partly trigger unwelcome reactions on the capital market, ” said NordLB’s analysts Norman Rudschuck and Frederik Kunze.

A bond market selloff in the eurozone earlier this week–also driven by higher-than-expected eurozone inflation–followed comments by ECB Governing Council member Robert Holzmann which contributed to debate around whether to reduce purchases in the Pandemic Emergency Purchase Programme, they said.

“We continue to believe that this discussion is necessary and that a reduction in purchases is likely before the end of 2021,” NordLB’s analysts said.

However, the likelihood that the ECB Bank will keep its pledge for an–albeit unspecific–increased pace of purchases at next week’s meeting “will remain high,” they said.

Commodities:

Oil prices wavered around flat after OPEC+ surprised nobody by sticking with its plans to raise production by 400,000 barrels a day in the coming months.

In the months ahead, the market will be watching Covid infection rates and U.S.-Iran negotiations in the event that a nuclear deal leads to sanctions being lifted on Iranian oil, ING’s Warren Patterson said.

“Overall, the outcome of the meeting was neutral for the market,” he said.

Elsewhere, EIA data revealed a larger-than-expected drop in U.S. crude inventories.

   
 
 

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September 02, 2021 05:50 ET (09:50 GMT)

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