News Column

MARKET COMMENT: US Stocks Seen Firmly Lower Ahead Of Non-Farms

August 1, 2014

James Kemp

LONDON (Alliance News) - US stocks are set to open materially lower Friday, extending recent declines, as investors await the highly anticipated non-farm payrolls report for July as they try to second-guess when the US Federal Reserve will raise its interest rates.

Equities in the UK, Europe, and US closed firmly lower on Thursday, hit by a wide array of concerning pieces of news from around the world.

This negative sentiment has rolled into Friday's session, with Asian stocks closing firmly lower, European and UK equities trading lower, and US stock futures pointing to a lower open.

Ahead of the US equity market open, the FTSE 100 is down 1.4% at 6,634.53, the FTSE 250 is down 1.3% at 15,293.91, and the AIM All-Share index is down 0.8% at 762.7. In Europe, the CAC 40 in Paris is down 1.2%, while the DAX 30 in Frankfurt is down 2%.

Earlier, the Nikkei in Tokyo, Hang Seng, and Shanghai Composite index all closed down more than 0.6%.

Meanwhile, in the run-up to the US equity market open, the DJIA and S&P 500 are called to open down 0.6%, while the NASDAQ Composite is expected to open down 0.7%.

"Stocks are plunging for a second day and it could potentially get really ugly once the non-farm payrolls report is released," says Fawad Razaqzada, a technical analyst at

The US Labor Department is due to release employment data 1330 BST, with the headline US unemployment rate, which fell to its lowest level since September 2008 in June, expected to remain unchanged at 6.1% in July.

The highly awaited non-farm payrolls report for July is released at the same time.

The consensus expectation is for the US economy to have added 233,000 jobs in July, which would be the fifth consecutive month of jobs growth above 200,000, and would likely lead to increased concern that strong economic data might lead the Federal Reserve to shorten the length of time between finishing its asset purchase programme and the first interest rate rise.

"If investors do in fact believe that the Fed could be persuaded to raise rates earlier than planned, then a strong report today should prompt more of a negative reaction in the markets" says Craig Erlam, a market analyst at Alpari. "If, on the other hand, we see a positive response to the jobs report, it would suggest that investors are not as concerned as some are suggesting," he says.

Meanwhile, the Commerce Department will release its personal income and spending report for June. Economists expect a 0.4% month-on-month increase in both personal income and spending.

Later on, June's reading of Markit services PMI from the world's largest economy is scheduled for 1445 BST, ahead of the latest reading of ISM non-manufacturing PMI at 1500 BST.

Economists expect the US Markit manufacturing PMI for July to be downwardly revised to 56.0 from the preliminary estimate of 56.3, having come in at 57.3 in June. The Institute for Supply Management's national manufacturing survey is expected to come in at 56.0 in July, up from the 55.3 posted in June.

The Reuters/Michigan consumer sentiment index for July is released at 1455 BST. The consensus estimate calls for an upward revision to 82.0 from the preliminary estimate of 81.3. This, however, is still below the 82.5 posted in June.

In the forex market, the pound continues to struggle against its major rivals, having fallen sharply in the wake of a much weaker-than-expected Markit manufacturing purchasing managers' index reading. The UK Markit manufacturing PMI fell to 55.4 in July, from 57.5 in June, missing expectations for a more modest decline to 57.2 and recording the slowest level of growth since July last year.

"Today's fall was most likely driven by slower world growth in recent months and the escalation of troubles in Ukraine," says Rob Wood, chief UK economist at Berenberg. "The English Channel is not wide enough to insulate British manufacturers from some wobbles in their main trading partner," he adds.

Ahead of the US equity market open and the latest tranche of US macroeconomic data, the pound trades at USD1.6831, EUR1.2559, CHF1.5275, and JPY173.277. The euro trades at USD1.3399.

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Source: Alliance News

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