Market snapshot: investors gear up for key jobs data

Investors are still searching for signs of weakness in the US economy, and there are increasing fears that evidence is becoming easier to find.

The latest ADP payrolls report showed that just 37,000 jobs had been added for the past month, lower than the 60,000 in April and some way off estimates of 110,000, leading to questions as to whether trade policy uncertainty is beginning to wash through.

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The report pales into relative insignificance, however, alongside the non-farm payrolls report due tomorrow which is the acid test. It is expected that 125,000 jobs will have been added in May as compared to 177,000 the previous month and that the 4.2% unemployment rate will remain unchanged.

Another economic update revealed that US retailers, finance companies and other businesses were subject to contracting activity last month, with the inability to forecast and plan given the tariff backdrop casting a long shadow over immediate prospects. The report had been expected to show growth, and is another potential canary in the coal mine for signs of economic stress.

By the same token, the reports reignited investors’ hopes that interest rate cuts from the Federal Reserve could be back on the table for later in the year, despite the Fed’s reticence to move thus far until the inflationary impacts of the tariffs can be more clearly known. Despite the news resulting in a slight fall in Treasury yields, these have been on the march at the longer end as investors fret over the potential that the government could be adding trillions of dollars to the national debt following the proposed sweeping tax cuts which are currently under discussion.

The developments led to what could prove to be a feature this month, namely a lacklustre showing across markets in the absence of any company updates of note, where half-year numbers will begin to filter through in July. In the meantime, the main indices have regained some poise following the jolt from tariff tantrums some months ago, with the Dow Jones now down by just 0.3% in the year to date, with the more tech-focused S&P500 and Nasdaq having recovered to be ahead by 1.5% and 0.8% respectively.

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Elsewhere, Asian markets were mixed in the absence of any positive stimulus, while gold took a breather from its recent run and oil steadied, although the price remains down by 13% so far this year in the face of uncertain demand.

Meanwhile, it is likely that the different policy paths of the world’s central banks will be highlighted again, with another European Central Bank rate cut of 0.25% priced in, as opposed to the likes of the Federal Reserve and the Bank of England, which have taken a generally more cautious approach.

In the UK, there was a slight technical headwind on the premier index as Vodafone Group (LSE:VOD), WPP (LSE:WPP) and Sainsbury (J) (LSE:SBRY) were each marked ex-dividend, leading to a faltering start. This weakness was partly offset by some tentative buying across the mining sector, suggesting a subdued and selective risk-on approach, where the FTSE100 is now ahead by 7.7% in the year to date and striving to add the 0.8% necessary to emulate the recent record March high.

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Domestically, a survey revealed that confidence in UK economic strength fell from 45% ten years ago to 28% today, during which time consumers have had to endure Brexit, the pandemic, a cost-of-living crisis and the current round of fiscal pressures.

More positively, confidence in non-essential spending has held firm at 53%, implying some underlying resilience. Indeed, the more domestically focused FTSE250 has shaken off its earlier weakness following some surprisingly resilient numbers from the UK over recent months and is now ahead by 2% so far this year.