Futures Rebound From Furious Selloff But Tech Slide Continues

Futures tracking the S&P 500 and Dow indexes bounced on Friday - if not so much the Nasdaq - after Wall Street’s worst session since June, with attention now turning to the crucial jobs report that is likely to show a faltering recovery in the labor market. S&P 500 contracts gained as much as 0.6% ahead of the U.S. open although the bounce appeared to lose power, while Nasdaq 100 Index futures resumes their slide after an attempt to rebound failed.

Despite the recovery in spoons, Nasdaq futures were deep in the red, as shares of Apple and Tesla - the poster children for the furious August ramp - resumed their slide in early premarket trading, suggesting that momentum from the rout may still be present.

After climbing to record highs on the back of historic stimulus and a rally in technology stocks, the S&P 500 and Nasdaq suffered their worst day in nearly three months on Friday as investors booked gains.

Elsewhere, there was a muted reaction to the tech-driven plunge in U.S. markets on Thursday, with European bank stocks rallying after news that Spain’s CaixaBank SA and Bankia SA are exploring a 14 billion-euro merger. Europe’s Stoxx 600 erased opening losses of as much as 1% to trade in the green as investors piled into cyclicals, selling off defensive sectors. Banks led gains, up 1.8%, with an extra boost from deal activity among Spanish lenders. Miners, autos and travel also outperformed, while real estate, tech and food-and-drink stocks fell the most.

Earlier in the session, Asian shares dropped led by health care and communications, with Australia’s benchmark recording the biggest decline since May. The Topix declined 0.9%, with Elematec and GMO Payment Gateway falling the most. The Shanghai Composite Index retreated 0.9%, with Henglin Furnishings and Cfmoto Power posting the biggest slides

As previewed previously, this morning's job report is expected to show 1.40 million U.S. jobs created last month, down from 1.76 million in July, as the government’s coronavirus aid ran out and companies from transportation to industrials announced layoffs or furloughs.

The data, expected at 8:30 a.m. ET could add pressure on the White House and Congress to restart stalled negotiations over the next coronavirus relief package, especially with stocks showing notable cracks.

Of course, attention will remain on tech companies. While the industry is generating blockbuster profits, there’s also been an explosion of speculative options among retail investors. For some investors, that’s clear evidence that tech stocks have become overheated according to Bloomberg.

"This is unlikely to be a repeat of the tech wreck of the late 1990s, given how much the market and sector have changed,” said JPMorgan Asset Management strategist Kerry Craig. While valuations are elevated, “we are also mindful of the earnings and revenue potential in the coming years from areas like cloud computing and artificial intelligence."

In rates, Treasuries were under modest pressure in early U.S. trading with losses led by long end, although the price action was relatively subdued ahead of August employment report. Yields were cheaper by 0.5bp to 2bp across the curve with 2s10s spread steeper by ~1bp, 5s30s by ~1.7bp; 10-year yields around 0.65%, lagging bunds by ~1bp on the day while gilts keep pace. European bonds were little changed, outperforming Treasuries.

In FX, the U.S. dollar consolidated gains on Friday but was set for its biggest weekly rise since mid-June as an overnight drop in high-flying U.S. technology stocks fuelled a bout of risk aversion in global markets. The dollar’s bounce this week comes after weeks of losses which saw the greenback fall to a April 2018 low of 91.74 on Tuesday after the U.S. central bank overhauled its policy framework last week, which would allow it to keep rates lower for longer periods, a negative for the dollar.

"The dollar’s loss-making momentum has stopped a little bit and the recent ECB comments on the euro has also helped but the broader direction of monetary policy making will be a key factor going ahead,” said Ulrich Leuchtmann, analyst at Commerzbank.

Against a basket of currencies the dollar was trading at 92.774 in early London trading. On a weekly basis, it was up 0.6%, its biggest weekly rise since mid-May. "Near-term, if this correction in big tech continues, it will impact overall risk and fuel further demand for the dollar," Mizuho strategists said in a note. Most currencies held in tight ranges before payrolls; Norway’s krone led gains, while the Australian dollar shrugged off an early dip to climb, after the country recommitted to opening the economy by December

In commodities, oil held above $44 a barrel on Friday and was on course for its biggest weekly decline since June as weak demand figures added to concern over a slow recovery from the COVID-19 pandemic. A U.S. government report showed that domestic gasoline demand fell in the latest week. Middle distillates inventories at Asia’s oil hub Singapore have soared above a nine-year high, official data showed. Elsewhere, spot gold and silver remain contained within tight ranges around 1935/oz and 28.80/oz respectively as the precious metals mirror Dollar action. In terms of base metals, Shanghai copper saw a session of losses as it tracked the performance in Chinese markets, whilst Dalian iron futures also tracked lower.

To the day ahead now, and as mentioned the US jobs report will likely provide the main highlight. Otherwise, we’ll also get German retail sales for July, the August construction PMIs from Germany and the UK, and the Canadian jobs report for August. Meanwhile, central bank speakers include the ECB’s Lane and Villeroy, along with the BoE’s Saunders.

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