All eyes will be on Friday’s critical non-farm payroll data before the opening bell on Wall Street. Economists expect the U.S. added a monthly total of around 170,000 jobs in August and the unemployment rate to hold steady at 3.8%. If the figures are weak, investors will likely increase bets that the Federal Reserve will pause interest-rate hikes. The probability that the Fed’s policy-setting committee will keep rates unchanged at its September meeting jumped to 88% this morning, according to CME Group’s FedWatch tool.
Investors will also be looking for any signs that inflation has turned down, helping the Fed’s task of taming inflation and interest rates. But the strong job market, which has fueled consumer spending, could make it harder to bring core inflation back down.
Last week, the Labor Department’s January jobs report blew past expectations, with U.S. employers adding 517,000 jobs in the month, the highest number since October. That helped to lift the 10-year Treasury yield to a three-week high above 3.5%.
However, a raft of economic data has shown that the economy cooled off after a blockbuster start to the year, and many analysts are now expecting an interest-rate rise this year to be delayed until 2023.
Thursday’s latest jobless claims data pointed to a continued cooling of the economy, with initial claims falling by 4,000 to 228,000 in the week ending Aug. 26, the lowest level in over four years. That and the pullback in Treasury yields this week helped drive a solid rally in stocks and other risk assets.
Technology and consumer-focused companies were among the top gainers in the stock market as investors brushed off fears of a global trade war and a slowdown in China’s economy. Investors poured money into shares in companies with significant overseas revenues, including Facebook Inc. FB and Apple Inc. AAPL. Shares in Hawaiian Electric Industries Inc. HE sank as the power provider faced an onslaught of costly lawsuits for its role in the Maui wildfires.
The dollar slipped against the euro and a basket of major currencies as traders bet the Fed will pause for now. This week’s fall in U.S. Treasury yields and some softer U.S. data weighed on the dollar, which also fell against the Japanese yen. The dollar’s decline against the yen was particularly sharp after Japan’s central bank raised its inflation target to 2% from 1%, which has led some investors to sell equities in favor of Japanese government bonds. That could help push up the prices of yen-denominated gold, often used as a haven when volatile markets are. In other trading, shares in Hawaiian Airlines Inc HULC sank almost 15% after the airline announced it was suspending flights due to the eruption of an ash cloud from Iceland. The airline said it assessed the situation and would decide on the next steps once it received more information.