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U.S. equity futures fell on Tuesday as investors returned from the Labor Day weekend with a cautious outlook, focusing on the upcoming labor market data. By 05:40 EST (09:40 GMT), the Dow Jones Industrial Average futures were down 185 points, or 0.5%, the S&P 500 futures dropped 28 points, or 0.5%, and Nasdaq 100 futures declined 140 points, or 0.7%.
Focus Shifts to Labor Market Data
As U.S. markets reopened after the holiday, attention quickly turned to a critical week ahead, with the highlight being the nonfarm payrolls report set to be released on Friday. The previous month’s labor report fell short of expectations, triggering a significant sell-off in risk assets. The weak performance in the labor market has sparked discussions about underlying causes, with some attributing the downturn to the impact of Hurricane Beryl, which struck Texas during the survey week of July’s employment report.
Although the Bureau of Labor Statistics (BLS) reported that the hurricane had “no discernible effect” on the employment data, the household survey painted a different picture. It revealed that 436,000 individuals were unable to work due to adverse weather conditions, marking a record high for July. Additionally, 249,000 people were reported to be on temporary layoff during the same period. The rise in unemployment was largely attributed to these temporary layoffs, leading market participants to question whether the July data was skewed by these transient factors.
The Federal Reserve, which closely monitors labor market conditions, will scrutinize this upcoming report to determine the extent of the next interest rate cut at their September meeting. Current market sentiment, as reflected in the CME FedWatch tool, suggests a 69% probability of a 25 basis points (bps) rate cut, with a 31% chance of a more aggressive 50-bps reduction.
Key Economic Indicators to Watch
Ahead of Friday’s critical nonfarm payrolls data, several other economic indicators are set to be released, which could offer further insights into the health of the U.S. economy. Later today, the U.S. ISM manufacturing survey data will be published, marking the first major economic indicator in what promises to be a pivotal week for U.S. financial markets. Following that, job openings data is scheduled for Wednesday, and the jobless claims report will be released on Thursday.
Investors are bracing for these key reports, which could set the tone for market movements leading up to the Federal Reserve’s next meeting on September 17-18. The results will likely play a significant role in determining the magnitude of the expected interest rate cut, further influencing investor sentiment and market direction.
