Focus on Nonfarm Payrolls as Investors Anticipate Fed Rate Cuts
Thursday’s trading session will revolve around the highly anticipated U.S. nonfarm payrolls report, which investors hope will provide insight into when the Federal Reserve might begin cutting interest rates.
1. Nonfarm Payrolls Take Center Stage
The spotlight is on the U.S. nonfarm payrolls report, which is expected to reveal the addition of 185,000 jobs in May, slightly up from April’s 175,000, the smallest gain in six months. The unemployment rate is anticipated to remain below 4% for the 28th consecutive month.
However, this week’s economic data hints at softening labor market conditions, suggesting a possible downside surprise. Investors have been concerned that a robust economy might prevent the Fed from cutting rates this year. But data indicating slowing inflation and a cooling labor market have partly eased these worries.
If the employment report shows continued slowdown in job creation, it could confirm that the economy is losing momentum. Conversely, a strong report could unsettle the markets. The Federal Open Market Committee meets next week, though it is not expected to cut rates at that time. Current market pricing suggests 50 basis points of cuts by the end of December, with the first cut likely in September.
2. Futures Edge Higher Ahead of Jobs Report
U.S. stock futures were slightly up on Friday morning, with investors cautious ahead of the crucial jobs report. By 04:00 ET (08:00 GMT), Dow futures were up 35 points (0.1%), S&P 500 futures climbed 3 points (0.1%), and Nasdaq 100 futures rose by 23 points (0.1%).
The major Wall Street indices are set for a winning week. The Dow Jones Industrial Average is up 0.5%, the S&P 500 has gained 1.4%, and the Nasdaq Composite is on track for a 2.6% increase.
The nonfarm payrolls report is expected to be the key focus, providing further evidence of a slowing economy that could support interest rate cuts from the Federal Reserve. This follows the European Central Bank’s rate cut on Thursday, its first since 2019.
3. Rising Short Positions on Nvidia
Nvidia (NASDAQ
) remains in the spotlight, with its stock more than tripling over the past year due to increased enthusiasm for AI applications. This surge pushed Nvidia’s market capitalization past $3 trillion on Wednesday.
Despite the high demand for its AI-optimized chips, short positions on Nvidia have also surged as it overtook Apple (NASDAQ
) to become the second-most valuable company on Wall Street. Data from S3 Partners indicated that the notional value of short positions on Nvidia reached $34.4 billion this week, about 1% of its total market cap. S3 Partners Managing Director Ihor Dusaniwsky stated that Nvidia is now the “largest short in the U.S. market.”
4. Continued Volatility in GameStop
GameStop (NYSE
) is expected to experience continued volatility, spurred by the announcement that Keith Gill, known as “Roaring Kitty,” will host a YouTube livestream. The video game retailer surged 20% on Monday after Gill’s return to Reddit with a $116 million bet on the stock.
Gill was instrumental in the 2021 rally of meme stocks, including GameStop, driven by individual investors on Reddit’s wallstreetbets forum. GameStop’s stock rose nearly 50% on Thursday and gained an additional 30% in after-hours trading.
5. Crude Prices Flat but Set for Weekly Losses
Crude prices were largely flat on Friday but are poised for a third consecutive week of declines due to concerns over rising supply. By 03:55 ET, U.S. crude futures were steady at $75.55 a barrel, while Brent dropped 0.1% to $79.84 per barrel.
Saudi Energy Minister Prince Abdulaziz bin Salman sought to address concerns about potential output increases from OPEC+ later this year, stating the group could pause or reverse voluntary output hikes if market conditions warrant it. Despite this, crude benchmarks are on track for weekly losses of around 2% following last weekend’s OPEC+ meeting.
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