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The Wednesday Market Minute

  • Global stocks trade near all-time highs following a modest pullback in Asia, with investors remaining focused on Friday’s non-farm payroll report.
  • U.S. manufacturing activity surges in May, but input costs rise to 2008 highs and labor shortages blunt growth in several regions around the country.
  • Oil prices test three-year highs after OPEC+ agrees to maintain the pace of its output cuts and Saudi Arabia’s powerful energy minister notes solid demand recoveries in the U.S. and China.
  • Benchmark 10-year note yields ease to 1.61% in overnight trading while the dollar index gains 0.3% to trade at 90.101.
  • CDC data shows 135.9 million Americans have now been fully vaccinated against the coronavirus, with around 296.4 million doses administered as of Tuesday.
  • U.S. equity futures suggest a mixed open on Wall Street with investors looking ahead to tomorrow’s ADP Employment report and Friday’s non-farm payrolls.

U.S. equity futures traded mixed Wednesday, with investors easing back from risk markets ahead of three key job market readings this week that could establish whether shortfalls in the labor force will slow the economy’s post-pandemic rebound and add to inflation pressures.

Friday’s non-farm payroll report is expected to show that 665,000 new jobs were added to the economy last month, but April’s surprisingly low tally of 266,000 — which came amid of surge in COVID vaccinations and state re-openings — suggests workers are still reluctant to return to the job market for a number of reasons, including generous unemployment benefits and a dearth in childcare. 

Manufacturing activity is rebounding firmly, according to May’s ISM report, but worker shortages are holding back gains in some regions around the country and factories are paying the highest collective prices for input — including energy and commodities — since 2008. 

That has investors wondering about the fate of both cyclical stocks, which have outpaced benchmarks for most of the year and are generally powered by growth dynamics, and tech stocks, which are acutely sensitive to inflation and interest rates. 

On the latter, market gauges haven’t indicated too much concern as yet: the CME Group’s FedWatch tool suggests only a 7% chance of a December rate hike from the Federal Reserve and benchmark 10-year Treasury note yields are holding in the low 1.6% range as the central bank continues its $120 billion in monthly asset purchases. 

Still, with the potential for labor shortages to trim growth prospects, and inflation pressures simmering at the highest levels in decades, investors are likely to adopt a caution stance ahead of tomorrow’s ADP National Employment Report and Friday’s payrolls.

Futures contracts tied to the Dow Jones Industrial Average suggest a modest 25 point opening bell gain for the benchmark while those linked to the S&P 500, which is up 11.87% for the year, are suggesting a 2 point dip.

Nasdaq Composite futures, meanwhile, are priced for a 20 point pullback with investors closely eyeing moves in the bond market, where 10-year note yields are trading at 1.611%.

In other markets, oil prices extended recent gains after OPEC leaders, along with non-member allies such as Russia, agreed to only gradual changes to their output cuts over the next few months, with Saudi Energy Minister Prince Abdulaziz bin Salman noting that solid demand recovery in the U.S. and China would help stabilize global markets.

“The vaccine rollout has gathered pace with around 1.8 billion vaccines administered around the world,” he told reporters Tuesday. “This can only lead to further rebalancing of the global oil market.” 

WTI contracts for July were marked 54 cents higher at $68.26 per barrel while Brent contracts for August, the global benchmark, rose 64 cents to $70.89 per barrel.

European stocks were also higher, but held just shy of all-time highs, while Asia stock were mixed following a late-session selloff in Shanghai that pulled the region-wide MSCI ex-Japan index from its 3-month peak.

Japan’s Nikkei 225 closed 0.46% higher at 28,946.14 points.