North American stock futures are gaining strength this morning as the U.S. released mildly weaker-than-expected jobs figures for August. The data is an important indicator of when the Federal Reserve is likely to start the tapering of its massive monthly bond-buying program, and the reading suggested little urgency to start the process. Gold immediately rallied on the jobs figure on bets the Fed will delay tapering and is up more than 1 per cent.
Many, but not all, market players think the Fed will announce a mild scaling back of the quantitative easing measures at its Sept. 17-18 policy meeting. A strong jobs report this morning would have been perceived as increasing the odds of tapering action this month, but the soft number has left some thinking the Fed may hold off until October or later.
Credit markets this week were bracing for a strong jobs figure. The U.S. 10-year Treasury note yield briefly surpassed the 3 per cent threshold late Thursday for the first time in more than two years. This morning, it dove to 2.87 per cent after the release of the U.S. jobs data.
Moments before the jobs figures, Chicago Fed President Charles Evans provided his latest outlook on the Fed's actions, predicting tapering will begin "later this year," depending on economic data. He also predicted the Fed will hike interest rates by mid to late 2015. U.S. stock futures, which earlier this morning were flat, are edging up just ahead of the jobs figures.
Canada also released its August jobs numbers this morning. They came in stronger than expected and sparked an immediate rise in the loonie to 96.16 per U.S. dollar, from 95.61 just prior to the release of the data.
In overseas markets, major European indexes came out of the red following the release of the U.S. jobs numbers. Japan's Nikkel tumbled a steep 1.4 per cent overnight amid profit-taking after stocks there rose every other day this week.
Now, here's a closer look at what's going on this morning and what's to come.
Futures: S&P 500 +0.39 per cent; Dow +0.38 per cent; Nasdaq +0.34 per cent; S&P Toronto +0.09 per cent
Hong Kong's Hang Seng +0.10 per cent
Shanghai composite index +0.83 per cent
Japan's Nikkei -1.45 per cent
London's FTSE 100 +0.31 per cent
Germany's DAX +0.38 per cent
France's CAC 40 +0.58 per cent
WTI crude oil (Nymex Oct) +0.61 per cent at $109.03 (U.S.) a barrel
Gold (Comex Dec) +1.30 per cent at $1,390.30 (U.S.) an ounce
Copper (Comex Dec) +0.99 per cent at $3.28 (U.S.) a pound
Canadian dollar at 96.03 (U.S.), up 0.0083 from yesterday's North American close.
U.S. dollar index down 0.40 at 82.22
U.S. 10-year Treasury yield 2.87 per cent, down 0.03
ECONOMIC INDICATORS TO WATCH:
The U.S. said nonfarm payrolls rose 169,000 in August, below forecasts of 180,000. U.S. payroll gains in July were revised lower to 104,000 from 162,000. The unemployment rate fell to 7.3 per cent as more people left the labour force.
Canada added 59,000 jobs in August from July, better than the 30,000 job gains that economists expected. The unemployment rate ticked down to 7.1 per cent from July's 7.2 per cent. It was expected to hold steady.
(10 a.m. ET) Canada releases the Ivey purchasing managers index for August.
STOCKS TO WATCH:
Calfrac Well Services Ltd. said it will spend $147-million (U.S.) to buy Mission Well Services LLC, a privately held hydraulic fracturing and coiled tubing services provider.
Sprott Resource said it plans to buy back up to 8.5 million shares.
J.C. Penney shares are up 2 per cent after the New York Post reported the retailer has dropped Martha Stewart-branded merchandise.
Smith & Wesson shares are down 5 per cent in the premarket after the gun maker provided weaker-than-expected guidance for the current quarter.
Earnings today include Smithfield Foods Inc. and Com Dev International.
Raymond James upgraded ADF Group Inc. to "outperform" from "market perform" and raised its price target to $2.75 from $1.50.
Merrill Lynch upgraded Constellation Brands to "buy" from "neutral."
Goldman Sachs upgraded ETrade Financial to "buy" from "neutral" and raised its price target to $19 from $13.50.
James Marple, senior economist with TD: "This was the report that mattered and it disappointed. Despite the string of relatively good data out earlier this week, the soft reading on job growth will give some comfort to those doubting the Fed's willingness to slow its asset-purchase program later this month. The 3-month average for job growth is now 148K, as opposed to 224K in April when the Fed first started to voice tapering intentions. The current pace of job growth does not quite take tapering off the table; but it does suggest the Fed will use a lighter touch. While the unemployment fell to 7.3%, it was for entirely the wrong reason - more workers leaving the labor market. The Fed has been clear that unless the decline in the unemployment is signaling a real and substantial improvement in labor market conditions, it will not change course. Not only does the unemployment rate have to get down to 6.5% before it starts raising the fed funds rate, it has to get there for the right reasons."
Sal Guatieri, vice-president of Economic Research with BMO Nesbitt Burns: "The August payrolls report overall is clearly a disappointment, and will add fodder for FOMC doves to delay tapering--unless the spate of positive economic results earlier this week (ISMs, autos, jobless claims) extends through the next two weeks. We believe it will, and lean slightly toward a tiny tapering move."
Craig Eriam, market analyst with Alpari (UK) Ltd.: "The other disappointing aspect of the jobs report was the unemployment rate. Once again we saw a significant drop in the participation rate from 63.4 to 63.2, which surely played a significant role in the rate falling to 7.3%. If there's one thing worse than the unemployment rate remaining stubbornly high, it's surely the rate dropping because people are giving up looking for work. The Fed will be fully aware of this at the meeting in September, which will surely make it difficult to justify tapering, given that an original aim of QE3 was to bring about a sustainable improvement in the labour market. All things considered, my opinion remains the same as it was before. The Fed should not, and probably won't, taper in September, especially with a potential conflict in Syria pushing up oil prices which will further weigh on the fragile economy."
Doug Porter, chief economist with BMO: "Canada is still churning out decent job gains (12,700 per month so far this year), just enough to gradually cut into the unemployment rate. This will not make much impact on the Bank of Canada's outlook, as the labour market has barely tightened in the past year and wages remain incredibly mild. However, no question it's a nice boost for the Canadian dollar, especially when stacked against the disappointing U.S. jobs tally."
Emanuella Enenajor, CIBC economist: "Despite the month's strong gain (in Canada's jobs market), the 6-month average hiring is running at a modest 12K, still supportive of our view that any rate move by the BoC still remains many quarters away."
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The premarket report is constantly updated to reflect the latest news developments and market moves. For instant headlines on breaking economic and corporate news in the premarket, follow Darcy Keith on Twitter at @eyeonequities. You can also be notified using our dashboard feature when new articles appear from this author. Read more on using this feature here.