Wall Street set to open lower on rising prospect of stagflation in world's biggest economy
NEW YORK (April 5) Wall Street is likely to open lower after the first of three jobs reports out this week indicated the first sign of weakness in the US labour market, putting the Federal Reserve in a tricky position in its battle to return inflation to its targeted range, while concern about a potential recession has propelled the price of gold towards its all-time high.
Futures for the Dow Jones Industrial Average (DJIA) fell 0.1% in Wednesday pre-market trading, while those for the broader S&P 500 index shed 0.2%, and contracts for the Nasdaq-100 were also 0.2% lower.
The Labor Department reported on Tuesday that US job openings slipped to 9.9 million in February, the fewest since May 2021. The DJIA and S&P 500 each finished lower for the first time in five sessions, with both declining 0.6% to 33,402 and 4,101 respectively, while the Nasdaq Composite lost 0.5% to 12,126.
Spot gold rallied above $2,000 an ounce to $2,024.89, its highest since March 2022, as the dollar weakened in response to the data. It was last trading at $2,025.53.
“Figures on job openings and factory orders are pointing towards a potential recession for the world’s largest economy, but the upside might be a pause in interest rates which would typically be a positive for stocks,” commented AJ Bell head of financial analysis Danni Hewson. “The concern is the Federal Reserve might have to sound the retreat before its war on inflation is truly done. This could leave us with the worst of all worlds – the dreaded stagflation where the economy is shrinking but prices are continuing to surge higher.”
Ahead of the all-important non-farm payrolls report on Friday, today’s release of the ADP National Employment Report is expected to reveal that an additional 200,000 private-sector jobs were created in March, down from 242,000 in February.
Also due out today, the ISM services index for March is expected to show a decline to 54.4 from 55.1 in February, noted ING strategist Francesco Pesole.
“Back in December, a one-off drop below 50 sparked recessionary panic and crippled the dollar. Now, the combination with yesterday’s decline in job openings could mean that even prints in the 52-53 area could have a similar effect, as markets see more than one high-frequency piece of data moving in the direction of economic slowdown,” he added.
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