U.S. equity futures reversed earlier declines Friday following a September jobs report that showed the lowest level of headline unemployment in at least fifty years and upward revisions to reports released over the previous two months.
U.S. employers added a weaker-than-expected 136,000 net new jobs to the economy last month, the Bureau of Labor Statistics said Friday, missing the 145,000 Street consensus but still solid enough to cushion the impact of weaker ISM manufacturing and services sector activity readings earlier in the week.
U.S. equity futures suggest only modest gains following the report, which also showed upwards additions of 45,000 over the past two months and a headline unemployment rate of 3.5%, with contracts tied to the Dow Jones Industrial Average indicating a 70 point gain and those linked the S&P 500 guiding to a 6.5 point bump higher for the broader benchmark.
Average hourly earnings, however, were flat compared to last month, and only 2.9% higher from last year. That's still ahead of the core inflation rate of 2.1%, but certainly doesn't suggest rampant consumer price increases in the coming months.
Another caveat in the reading was the high level of government job additions, many related to the 2020 Census, which contributed to both this month's tally and the previous monthly upgrades.
"This is as good as it's likely to get until the trade war is resolved," said Ian Shepherdson of Pantheon Macroeconomics. "Leading indicators, which warned clearly of the slowdown in job growth over the past few months, now point clearly to the trend slowing to just 50K or so by the end of the year."
"Overall, these data offer something for everyone; bulls can point to unemployment, bears will highlight (Average hourly earnings), and the unpersuaded can point to the OK payroll number. But this is an evolving situation, and the next clear move in the data will be downshift in job growth," he added.
With global factory activity also slowing to near-decade lows, and the WTO warning that a "darkening outlook for trade" is hampering growth and job creation, traders had been increasing bets on a near-term interest cut from the Federal Reserve, which meets at the end of this month in Washington, in order to support the slowing domestic economy.
The CME Group's FedWatch tool is pricing in an 87.1% chance of an October rate cut, which would lower the Fed's target range to 1.5% to 1.75%, with bets on a further reduction between now and the end of the year rising to just under 50%.
The moves have added downward pressure to benchmark Treasury yields, which have fallen for six consecutive sessions, but 2-year notes jumped 2 basis points to 1.41% while 10-year paper traded at 1.55%
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked only modestly lower at 98.85 in overnight trading, but jumped 0.11% to 98.96 after the data release.
European stocks opened modestly higher from last night's close, with support coming from out-sized gains in the tech sector following a report from Japan's Nikkei business daily that Apple (AAPL) - Get Apple Inc. Report is increasing its iPhone 11 production rates by as much as 10% to meet increased demand.
The benchmark Stoxx 600 index was marked 0.14% lower in Frankfurt following the jobs report, while Britain's FTSE 100 added 0.3% in London as the pound eased to 1.2302 against the U.S. dollar.
Overnight in Asia, investors shrugged off the stronger yen to give the Nikkei 225 a 0.32% boost as the late-session rally on Wall Street spilled over into regional trading, but that bid quickly faded as markets elsewhere began trading, taking the region-wide MSCI ex-Japan benchmark to a third weekly decline.
Global oil prices were also muted in the early European session, with traders citing slowing factory and services growth, as well as reports suggesting Saudi Arabia had returned to full production capacity follow last month's drone attacks on two key facilities, as downside influences.
Brent crude contracts for December delivery, the global benchmark, were seen 63 cents higher from Thursday's New York close to trade at $58.34 per barrel while WTI contracts for November delivery, which are more tightly linked with U.S. gasoline prices, were marked 31 cents higher at $52.76 per barrel.