Dollar, Stocks Face Pressure Ahead of US Jobs Data: Markets Wrap

(Bloomberg) — US stock futures fell as traders braced for jobs data that will be critical in determining the health of the US economy and the size of a Federal Reserve interest rate cut later this month.

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Nasdaq 100 contracts were down more than 1% while the S&P 500 was set for a fourth day of declines. Nvidia Corp. dropped 1.6% in premarket trading as chipmakers slid following disappointing guidance by Broadcom Inc.

Investors will look at Friday’s report to gauge whether the US economy is heading for a soft landing or a recession. Concerns about an excessive slowdown have fueled a retreat from risk assets this week, with the policy-sensitive two-year Treasury yield dropping 18 basis points since Tuesday to 3.73%.

Swap contracts are fully pricing in 25 basis points of cuts when Fed officials meet in two-weeks time, with a roughly one-in-three chance of a 50 basis-point reduction. Even so, traders at Citigroup Inc. are anticipating even deeper cuts, wagering on three half-points of easing this year.

“There’s likely to be volatility in markets as we work through whether or not we can actually have a soft landing,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Co. “Investors need to be ready for more volatility, based upon a transition from a rate-hike cycle to a rate-cut cycle.”

Forecasters anticipate Friday’s report will show a bounce in hiring and a tick lower in the unemployment rate in August, marking a stabilization after July. Payrolls probably rose by 165,000 last month following July’s 114,000 increase, according to the median estimate in a Bloomberg survey of economists. Unemployment probably edged down to 4.2%.

“Risk markets are sensitive to growth dynamics rather than to interest rates right now, said Bilal Hafeez, chief executive officer and head of research at Macro Hive. “If we were to see a weak number, risk markets such as equities will take that badly.”

In Europe, a key measure of euro-zone wage growth eased, proving further assurance to European Central Bank officials seeking to lower interest rates next week. Should inflation continue to abate, borrowing costs will be lowered every quarter until they reach 2.5%, according to a Bloomberg survey.

Meanwhile, the region’s stocks benchmark is heading for the biggest weekly decline in almost a year.

Yen Strength

Currency strategists see a strong chance the yen will test its August high versus the dollar if the payrolls data boost bets for a 50 basis-point move. The Japanese currency rose to trade near 143 against the dollar on Friday.

The yen “is where the action will be” if there is any surprise in the figures, said Gareth Berry, a strategist at Macquarie Group Ltd. in Singapore. Bloomberg’s gauge of the greenback retreated for a third day.

Oil was poised for the biggest weekly loss in almost a year on concerns about soft demand and ample supply, even as OPEC+ delayed a planned increase in output by two months. Iron ore remained on track for its worst week since March, with few signs of a recovery for China’s steel market.

Key events this week:

• Eurozone GDP, Friday

• US nonfarm payrolls, Friday

• Fed’s John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.6% as of 7:43 a.m. New York time

• Nasdaq 100 futures fell 1.1%

• Futures on the Dow Jones Industrial Average fell 0.4%

• The Stoxx Europe 600 fell 0.3%

• The MSCI World Index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.1106

• The British pound was little changed at $1.3172

• The Japanese yen rose 0.3% to 143.05 per dollar

Cryptocurrencies

• Bitcoin fell 0.2% to $55,942.82

• Ether rose 0.2% to $2,371.47

Bonds

• The yield on 10-year Treasuries declined three basis points to 3.70%

• Germany’s 10-year yield declined four basis points to 2.17%

• Britain’s 10-year yield declined four basis points to 3.87%

Commodities

• West Texas Intermediate crude rose 0.5% to $69.48 a barrel

• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu, Aya Wagatsuma, Sujata Rao and Cecile Gutscher.

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