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U.S. stock-index futures wobbled on Friday, trading off their best levels Friday, after a report on monthly employment from the Labor Department came in far weaker than had been anticipated, sparking fresh questions about the labor markets recovery from the COVID-19 pandemic amid the spread of the delta variant.

How are stock futures trading?
  • Futures for the Dow Jones Industrial Average YM00, -0.29% traded 21 points, or 0.1%, higher at 35,445.
  • S&P 500 futures ES00, -0.26% trade 3.30 points, or less than 0.1%, lower at 4,539.
  • Nasdaq-100 futures NQ00, -0.16% futures were 8.75 points, or less than 0.1%, higher at 15,609.75.

The Dow DJIA, -0.34% rose 131.29 points on Thursday to finish at 35,443.82, while both the S&P 500 SPX, -0.21% and the Nasdaq COMP, -0.07% closed at new records, climbing 0.3% to 4,536.95 and 0.1% to 15,331.18, respectively.

What’s driving markets?

Job creation in August weakened significantly and stock markets were struggling to maintain a bullish posture on Friday.

Data from the Labor Department showed that the U.S. economy added 235,000 jobs in August, far smaller than forecast for an increase of 720,000. The unemployment rate, meanwhile, dropped to 5.2% from 5.4% and touched a new pandemic low. 

The “headline number is obviously disappointing—much lower than expectations—and markets will react. But the interesting question is why the number is so low,” said Brad McMillan, chief investment officer at Commonwealth Financial Network, in a daily note. “The takeaway here is that much of the weakness comes from the rise in medical risks, rather than a general slowdown in the economy which is also consistent with the weak consumer confidence numbers.”

Despite the figures the weaker-than-expected headline figures, the data for the two previous months were raised. June job gains were lifted to 962,000 from 938,000 and July job gains were raised to 1.05 million from 943,000.

On top of that wages grew on the month. Average hourly earnings, month-over-month, rose 0.6% versus 0.3% expected and 0.4% in July and on a year-over-year basis, wages rose 4.3%, compared with 3.9% expected and 4.0% last month.

“Friday’s jobs report showed a significant slowing in hiring, but a surge in wage growth, which is a worrisome combination for the economy,” wrote Jay Pestrichelli, CEO of ZEGA Financial, a West Palm Beach, Fla., investment firm managing $600 million. “Slow economic growth and rising inflation is the worst case scenario for the economy,” he wrote in emailed remarks.

Still, the overall report may raise some questions about whether the Federal Reserve could delay its long-anticipated plan to start dialing back asset purchases and other policies that have been viewed as accommodative.

Fed Chairman Jerome Powell has signaled that the central bank would use employment as a key indicator while it considers the end of its pandemic-era measures to add liquidity to markets.

“After having indicated a taper was likely in the next few months, August payrolls perhaps throws that into disarray,” wrote Principal Global Investors’ Chief Strategist Seema Shah, in emailed comments.

“Of course, inflation has been running at multi-decade highs, and has clearly met the ‘substantial further progress’ test—yet that doesn’t appear to have made sufficient an impression on the Fed, the strategist wrote.

Wednesday’s ADP jobs report, in some ways an opening act for the end-of-week headliner, also fell far short of expectations, signaling the economy still has room to run.

“Indeed, with their conviction that inflation will ultimately prove transitory, the Fed is currently much more focused on the employment recovery, implying that today’s very weak number will likely sway the Fed to a November taper, if not later,” Shah wrote.

Sharing the U.S. economic data spotlight with nonfarm payrolls is the Institute for Supply Management’s services index and the final Markit services PMI for August due later Friday.

Elsewhere, Japanese stocks far outperformed their Asian peers after Prime Minister Yoshihide Suga, whose government has come under fire for its handling of the pandemic, said he would resign ahead of national elections this year

“Ahead of the all-important U.S. jobs numbers, the big story of the day has been the Nikkei’s 2% surge,” said Russ Mould, an analyst at broker AJ Bell.

“The market’s reaction to his announcement would suggest investors are optimistic that the country will find a stronger leader. Mining, healthcare, real estate and technology stocks all pushed forward on the main Japanese index,” Mould noted.

Meanwhile, Chinese stocks felt a pinch after weak economic data from the August services purchasing managers index (PMI), which came in at 46.7, below the 52.0 expected and a decline from 54.9 in July. 

How are other assets faring?
  • In Asia, the Shanghai Composite SHCOMP, -0.43% slipped 0.3% and the Hong Kong Hang Seng Index HSI, -0.72% dropped 0.7% into the red, while Tokyo’s Nikkei 225 NIK, +2.05% rose 2%
  • In Europe, London’s FTSE 100 UKX, -0.30% was 0.2% higher as the pan-European Stoxx 600 SXXP, -0.79% fell 0.1%; Paris’ CAC 40 PX1, -1.18% declined 0.3% and Frankfurt’s DAX DAX, -0.68% moved 0.1% into the green
  • Oil prices have consolidated gains made in Thursday’s rally, with international benchmark Brent BRN00, +0.29% crude more than 0.2% higher on the day and holding above $73 a barrel