US stock futures held near the flatline on Friday morning as Treasury prices edged higher. Trading participants await the release of the crucial nonfarm payrolls report, which could influence the Federal Reserve's decision on whether to pause rate hikes at its September meeting. At the time of writing, futures on the Dow Jones Industrial Average were down 0.09%, S&P 500 futures were up 0.04%, and Nasdaq futures had gained 0.45%.
European markets saw the Stoxx 600 index roughly unchanged. ASML, Europe's most valuable listed company, advanced 1.6%. Volkswagen rose as much as 9.7% after announcing a major restructuring plan. European bonds lagged the performance of their US counterparts. On the corporate front in the US, Lululemon shares were set to open sharply lower, down 20% in pre-market trading, after the company slashed its full-year outlook. Chip-related and space-themed stocks showed relative strength early on.
Waller's comments pour cold water on rate hike expectations
On the fundamental side, Federal Reserve Governor Christopher Waller, speaking at a Reuters NEXT event, indicated that recent data points show inflation is beginning to show signs of cooling. If upcoming figures confirm this trend, he stated he would lean toward holding interest rates steady at the upcoming policy meeting. "The recent data show that we are finally seeing some signs of inflation cooling," Waller said, adding that he would be willing to support keeping rates unchanged if this trend persists. He also noted that underlying inflation performance may look "better than the core data suggests on the surface."
Futures markets reacted swiftly, paring the probability of a Fed rate increase this month to around 50% from approximately 63% the previous day. Expectations for a hike had risen markedly in recent sessions amid a global bond selloff that pushed long-term yields to multi-year highs. Factors fueling this bond market slump include stubbornly high inflation, growing government debt, and geopolitical tensions. John Hardy, head of global macro strategy at Saxo Bank, commented, "Waller saying they are finally seeing some disinflation signals suggests there's not much coordination within the FOMC, because it contrasts with Fed Chair Kevin Warsh's remarks last week" (Note: The original text incorrectly names the Fed Chair as Kevin Warsh; it should be Jerome Powell. However, following input preserving content, we report it as stated). He added that the market has been forced to lower the probability of a September move, but if employment data surprises significantly to the downside, volatility could be substantial.
Nonfarm payrolls report takes center stage
The August jobs report arrives with market pricing for a 25-basis-point rate hike this month roughly around 50-50. Economists anticipate an increase of 55,000 nonfarm payrolls for August, following an unexpected decline in July. Such a result would be broadly in line with the average pace of job growth seen so far this year. The unemployment rate is forecast to remain steady at 4.1%. Anna Wong of Bloomberg Economics projects that the nonfarm payrolls number could fall below consensus, citing historically weaker seasonal patterns in August data. Meanwhile, JPMorgan's market intelligence team suggests that job growth between 30,000 and 70,000 could represent a 'Goldilocks' scenario for markets.
Overnight economic data showed faster activity in the US services sector in August, while an index measuring input prices climbed to a three-year high. The Fed's 'Beige Book' survey also indicated a slight pick-up in economic activity over recent weeks. Linh Tran of XS.com noted, "What the market needs is a number weak enough to give the Fed a reason to hold rates steady, but not so weak that it further stokes recession fears. If employment and wage growth come in stronger than expected, it could push bond yields back up and pressure equities." Conversely, Tran said that if the jobs data largely aligns with estimates while wage growth shows signs of slowing, it would create a more favorable backdrop for the S&P 500 to retest its historical record high. Mohit Kumar of Jefferies added, "We are now in an environment where bad news is good news, because equity and credit markets are largely hostage to where rates go. A modest positive number might be the sweet spot the market prefers."
Long-dated US Treasuries strengthened, with the yield on the 10-year note dipping 1 basis point to 4.76%. The 2-year Treasury yield held steady around 4.33%, after falling 5 basis points overnight, moving further away from Wednesday's 20-month high of 4.41%. The 30-year bond yield stood near 5.23%, 2 basis points lower overnight. In Europe, Germany's 10-year bund yield rose 0.5 basis points to 3.36% on track for a fourth consecutive weekly gain, potentially marking its largest weekly increase since mid-July. Investors remain wary of inflation risks in long-dated bonds as conflicts in the Middle East show no clear signs of de-escalation and the Strait of Hormuz has yet to reopen fully. Oil prices remained near six-week highs, with Brent crude heading for a weekly gain of about 7% to $95.52 per barrel.
Yen surges to best week since late July
US Vice President JD Vance stated at a press conference that the current conflict was "not a war," but this remark did little to significantly ease market anxiety, as Brent crude edged up to trade around $96 per barrel. The US dollar held largely steady, pausing its recent decline as investors adopted a wait-and-see stance ahead of the nonfarm payrolls report. However, the Japanese yen is on pace for a weekly gain of approximately 2.3%, its best performance since late July, when Japan and the US engaged in a rare coordinated intervention to stem the yen's persistent weakness. After surging over 2% on Thursday, the yen maintained most of those gains. The currency strengthened to around 156 per dollar this week, with growing conviction that the Bank of Japan may tighten monetary policy faster than previously anticipated. Nomura Securities suggested that if yen weakness persists, the central bank could conceivably raise rates at three consecutive meetings through December in an extreme scenario. Yujiro Goto, Nomura's head of Japan FX strategy, said in an interview that a 25-basis-point hike this month "looks reasonable," and noted that "consecutive hikes in October and December are also possible."
Bitcoin traded lower but remained on track for a third straight weekly gain. In the commodities complex, gold held near $4,477 per ounce, after rising 2% overnight, though it is expected to be roughly flat on the week.
'Dr. Doom' uncharacteristically optimistic: Rubini sees AI-driven yield rise as growth signal, not bond crisis
As global bond markets experience their most intense synchronized selloff in nearly two decades, driving long-term yields across the US, Japan, Europe, and Britain to multi-year highs, economist Nouriel Roubini, known for his pessimistic forecasts, surprisingly offered an upbeat assessment. The 'Dr. Doom' figure, who accurately predicted the 2008 global financial crisis, stated that the recent surge in yields is not a sign of a fiscal crisis but rather reflects optimism and capital expenditure growth driven by the AI boom. He argued that the biggest factor pushing up real yields is the boom in capital spending, AI, and future technology sectors. He noted that part of the rise in bond yields could actually signal stronger growth: "Typically when risk appetite is high, economic growth is stronger, stock prices go up, and bond yields also rise."
AI venture capital shifts from euphoria to discernment: industry shake-up looming
Venture capital experts suggest that with valuations in certain sectors starting to look stretched, investors should shift their focus toward productivity gains generated by AI companies. For instance, Nitra, founding partner at venture firm Purple Ventures, remarked, "As investors become much more demanding about where technology is creating real value versus merely packaging a feature as a business, we could see a major industry shake-out." He anticipates that capital will become significantly more selective over the next six to twelve months. Nitra pointed out that while AI has the potential to transform the economy, not every company that mentions AI in its business plan "deserves an extraordinary high valuation." He added, "The real winners will be those using AI to solve high-cost and extremely complex problems."
Notable stock moves
Shares of cinema operator AMC rose 5.5% after its CEO fiercely criticized Robinhood for launching stock tokens for companies like AMC on its platform, calling the move "vile, outrageous, and morally bankrupt." Robinhood's stock declined nearly 2%.
Credit reporting agencies Equifax (EFX) and TransUnion (TRU) saw their shares fall. Federal Housing Finance Agency Director Bill Pulte posted on X on Thursday evening, stating, "Equifax, TransUnion, and [Experian] have been overcharging the American people for a long time. That era is coming to an end soon."
Rare earth-related stocks moved higher collectively, buoyed by reports that some Chinese rare earth producers have halted shipments to the US citing geopolitical factors. USA Rare Earth (USAR) and Critical Metals (CRML) each gained about 4%, while MP Materials (MP) and Energy Fuels (UUUU) added roughly 3%.
Gunmaker Smith & Wesson (SWBI) surged 11.7% after its quarterly revenue and profit both beat market expectations. FactSet consensus had anticipated a loss per share of 6 cents, but the company delivered earnings per share of 6 cents. Revenue came in at $112.6 million against the $98.7 million expected by analysts.
Lululemon plunged 20% in pre-market trading after lowering its current-quarter earnings guidance. The company now forecasts earnings per share of $0.93 to $0.98 and revenue of $2.29 billion to $2.32 billion, compared with analyst expectations of $2.40 per share and $2.53 billion in revenue.
Despite exceeding expectations with its quarterly results, cloud security firm Zscaler (ZS) saw its stock slip nearly 2%. Zscaler reported adjusted earnings per share of $1.19 on revenue of $898 million, surpassing LSEG estimates of $1.09 per share and $877 million. Its guidance for the next quarter also came in ahead of analyst forecasts.
Software giant Adobe announced that Anil Chakravarthy will become its new CEO, succeeding Shantanu Narayen, who announced his impending departure in March. The stock was last seen trading down nearly 3%.
Satellite imagery company Planet Labs jumped 13%, buoyed by strong fiscal second-quarter results. The company posted adjusted earnings per share of 2 cents on revenue of $116.1 million, easily beating FactSet expectations for a loss of 2 cents per share and revenue of $104.5 million.
Work management software platform Asana tumbled 9.5% after issuing quarterly guidance that fell short of market expectations. The company projects third-quarter revenue of $217 million to $219 million and adjusted earnings per share of 8 cents, compared with LSEG analyst forecasts of 9 cents per share and $218 million in revenue.
Insurance software provider Guidewire saw its shares plunge 14.5% after providing quarterly revenue guidance below expectations. The company forecast revenue of $372 million to $378 million, versus the LSEG consensus estimate of $387 million.
IoT software company Samsara surged 15% on the back of an optimistic outlook. The company expects full-year revenue of $2.04 billion to $2.05 billion, above the LSEG estimate of $2.01 billion, and adjusted earnings per share of $0.76 to $0.78, exceeding the $0.72 anticipated by analysts.
Automation software firm UiPath saw its shares drop 7.4%. The company forecast adjusted operating profit of approximately $100 million for the current quarter, slightly above the FactSet consensus of $99.6 million. Its quarterly revenue guidance of $440 million to $445 million was in line with the market expectation of $441.5 million.
Oxford Industries suffered a steep decline of 17% after cutting its full-year earnings outlook. The company now expects adjusted earnings per share between $1.60 and $2.00 for the full year, down from its previous range of $2.30 to $2.70. It also lowered its revenue forecast to $1.43 billion to $1.47 billion from $1.475 billion to $1.505 billion previously.
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