Dow Jones expected to start cautiously higher on Friday as traders await October jobs report

6.30am: Keep Hard hats handy

US stocks were expected to start cautiously higher on Friday as traders await the latest, always volatile, non-farm payrolls report, recovering after having extended falls in the previous session after mixed signals Wednesday from the Federal Reserve on future interest rate rises.

Futures for the Dow Jones Industrial Average were up 0.5% in pre-market trading on Friday, while contracts for the S&P 500 and the Nasdaq-100 were both 0.7% higher. On Thursday, the Dow Jones shed 0.5%, while the S&P 500 fell 1.1% and the Nasdaq Composite dropped 1.7%.

 Michael Hewson, chief market analyst at CMC Markets UK commented: “It was another tough day for European and US markets yesterday in the wake of concerns that the Federal Reserve’s aggressive stance on inflation will drive the global economy into recession, as the soaring US dollar exports an inflationary shock across the world. (Although) Asia markets have managed to stabilise somewhat with Chinese markets surging on more unsubstantiated reports that the Chinese government is looking at a reopening strategy.”

In light of the negative market reaction to this week’s Fed meeting and governor Jay Powell’s press conference, in particular, the focus is now set to return to economic fundamentals, with the October US non-farm payrolls report due at 8.30am ET today, as well as next week’s US CPI inflation report.

Hewson said: “The Federal Reserve continues to see the labour market as particularly tight, especially when looking at the fairly low participation rate, and any weakness here in the coming months could take some of the heat out of the recent rise in yields and surge in the US dollar.

“After Wednesday the market appears to think the Federal Reserve is on a mission and won’t stop until something snaps. The fear is that it might be the global economy if they continue to hike without any regard for the effect the soaring US dollar is having on the rest of the world.

“The very low unemployment rate is perhaps one of the reasons why the US labour market has managed to hold up well despite concerns over slowing consumer spending and increased costs on the part of some US businesses.”

Hewson noted that US weekly jobless claims numbers have continued to decline from the highs of around 260,000 seen in the summer, despite rising evidence that companies are starting to shed staff in large numbers. So far these job losses do not appear to be showing up in the headline numbers, while the October ADP private payrolls report showed a big jump of 239,000 earlier this week, he added.

“The September payrolls numbers were decent, coming in at 263k, while the unemployment rate fell to 3.5%, although that was largely down to a similar drop in the participation rate to 62.3% from 62.4%. This continues to be a puzzle given the continued rising cost of living and the fact it is 1% below the levels it was pre-pandemic, when it was at 63.4%,” Hewson said.

Expectations are for October jobs growth of 195,000 which would be the lowest number this year, along with the unemployment rate ticking back up to 3.6%.

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