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Bigger Than Expected Increase In Jobless Claims May Generate Buying Interest

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April 04 2024 9:05AM

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to move to the upside after ending the previous session little changed.

The futures climbed more firmly into positive territory following the release of a Labor Department report showing first-time claims for U.S. unemployment benefits rose by more than expected in the week ended March 30th.

The report said initial jobless claims climbed to 221,000, an increase of 9,000 from the previous week’s revised level of 212,000.

Economists had expected jobless claims to inch up to 214,000 from the 210,000 originally reported for the previous week.

With the bigger than expected increase, jobless claims reached their highs level since hitting 225,000 in the week ended January 27th.

The advance by jobless claims may generate optimism about the outlook for interest rates, although traders may be reluctant to make significant moves ahead of the release of the more closely watched monthly jobs report on Friday.

Economists currently expected employment to jump by 200,000 jobs in March after surging by 275,000 jobs in February, while the unemployment rate is expected to hold at 3.9 percent.

A separate report released by the Commerce Department showed the U.S. trade deficit unexpectedly widened in the month of February.

Stocks recovered from an initial move to the downside and spent most of Wednesday’s trading session in positive territory. Buying interest waned in the latter part of the session, however, with the major averages eventually ending the day narrowly mixed.

While the Dow edged down 43.10 points or 0.1 percent to 39,127.14, closing lower for the third consecutive session, the S&P 500 crept up 5.68 points or 0.1 percent to 5,211.49 and the Nasdaq rose 37.00 points or 0.2 percent to 16,277.46.

The early turnaround on Wall Street came following the release of a report from the Institute for Supply Management showing an unexpected slowdown in the pace of U.S. service sector growth in the month of March.

The ISM said its services PMI dipped to 51.4 in March from 52.6 in February. While a reading above 50 still indicates growth in the sector, economists had expected the index to inch up to 52.7.

Notably, the report also showed a substantial slowdown in the pace of price growth in the sector, with the prices index tumbling to 53.4 in March from 58.6 in February. The index fell to its lowest level since March 2020.

The data helped ease recent concerns about the outlook for interest rates, which contributed to a steep drop by stocks on Tuesday.

Worries the Federal Reserve may hold off on lowering interest rates also contributed to the early weakness on Wall Street after payroll processor ADP released a report this morning showing stronger than expected private sector job growth in the U.S. in the month of March.

ADP said private sector employment jumped by 184,000 jobs in March after climbing by an upwardly revised 155,000 jobs in February.

Economists had expected private sector employment to increase by 148,000 jobs compared to the addition of 140,000 jobs originally reported for the previous month.

Meanwhile, Fed Chair Jerome Powell reiterated during remarks at Stanford University that the central bank is not in a hurry to begin lowering interest rates.

Powell pointed to higher inflation data over January and February as a reason for the Fed to be cautious but acknowledged it is “too soon to say whether the recent readings represent more than just a bump.”

“We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent,” Powell said.

He added, “Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.”

The modest lower close by the Dow partly reflected steep drop by shares of Intel (NASDAQ:INTC), with the semiconductor giant plunging by 8.2 percent.

Intel came under pressure after disclosing a $7 billion operating loss by its semiconductor manufacturing business in 2023, wider than the $5.2 billion operating loss the year before.

Gold stocks saw significant strength on the day, driving the NYSE Arca Gold Bugs Index up by 2.3 percent to its best closing level in over ten months.The rally by gold stocks came as the price of the precious metal jumped to a new record high.

Considerable strength was also visible among computer hardware stocks, as reflected by the 2.1 percent jump by the NYSE Arca Computer Hardware Index.

An increase by the price of crude oil also contributed to notable strength among energy stocks, while housing stocks also moved to the upside.