Market snapshot: why key US jobs report could be no-win situation

Investors hoping for a happy end to a grim week will have to wait for this afternoon's US non-farm payrolls data before getting their wish, or not. Our head of markets assesses stock performance and the odds of further volatility and uncertainty. 

Markets put in a lacklustre performance ahead of what is arguably the most important monthly economic release globally.

In earlier trade, the main US indices dipped following economic releases indicating that manufacturing activity had grown in August, boosted by new orders and higher employment. Such news was initially read as showing the resilience of the US economy, despite the Federal Reserve’s aggressive stance on rate rises in an effort to curb inflation. In the final few minutes of the session, however, the Dow spiked, ending the day marginally higher, along with the S&P500.

The Nasdaq tech index, however, could not crawl into positive territory, ending the day down by 0.3%, as Treasury yields spiked again, which in turn weighed on high growth stocks where future profits are less attractive in a rising interest rate environment.

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The next challenge comes later today in the form of the highly anticipated non-farm payrolls report.

Unfortunately the release could leave investors in something of a no-win situation given current sentiment. If the number strongly exceeds the expectation of 300,000 jobs being added, as was the case last month, aggressive tightening will continue with an economy still able to withstand rate pressures. If on the other hand the number is weak, recessionary concerns will inevitably surface, with the likelihood that lower valuations will need to be factored into share prices.

In the meantime, and in the absence of any obvious near-term positive catalysts, the main indices have much ground to recover. In the year to date, the Dow Jones is down by 13%, the S&P500 by 17% and the Nasdaq by 25%.

Asian markets were also subdued Friday, troubled again by developments in China. A lockdown was announced in the city of Chengdu, which has over 21 million residents, while in Shenzhen new distancing rules were rolled out. Given that such lockdowns are now encroaching on bustling city hubs, it is increasingly feared that the resultant effect on the country’s economy could be significant.

The prospect of weakening demand from the world’s second largest economy also gave rise to another volatile session for the oil price, which rebounded slightly after a noticeable decline. The price remains ahead by 20% in the year to date, but significantly off earlier highs in the face of an increasingly challenged global backdrop.

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After a poor start to the month, the FTSE100 staged a comeback in opening exchanges, even though the rebound was somewhat half-hearted. Gains were limited by a broad markdown of housebuilders in light of a possibly cooling housing market, while the general losses from the previous day added to the erosion of the hard-fought gains which the index had previously made.

Today’s initial rise leaves the FTSE100 down by 2.8% this year and, with no immediate end in sight to a raft of economic challenges, the volatility and uncertainty of recent months looks likely to persist.