LONDON (AP) — A rally spurred by expectations that the U.S. economy added significantly more jobs than initially forecast in June petered out on Friday as investors prepared for the official employment report.
After the private payrolls firm ADP reported Thursday that employers added more than double the number of jobs forecast, hopes soared that the official employment figures would show the U.S. economy is pulling itself out of a soft patch. A report that showed weekly unemployment claims fell also fed the rally.
Before the ADP report, economists were expecting Friday’s nonfarm payrolls data to show an increase of about 90,000 jobs; now analysts are saying the number could be between 120,000 and 200,000.
While those numbers are up from the 54,000 jobs added in May, they hardly indicate strong growth. The low end of the forecast range is what’s needed to keep up with population growth, and even the high end wouldn’t be enough to reduce unemployment.
In fact, analysts are predicting the unemployment rate will remain unchanged at 9.1 percent, indicating that the U.S. economy is only very slowly picking up steam.
The health of the U.S. labor market is crucial for the global recovery as consumer spending accounts for a massive 70 percent of the world’s largest economy.
“The key data release will be Non Farm Payroll and if it doesn’t disappoint the gush into equities is likely to accelerate,” said Sebastian Galy, an analyst with Societe Generale.
By early afternoon Friday, European stocks had pulled back from their gains but were mostly positive.
The FTSE index of leading British shares gained 0.5 percent to 6,057, and Germany’s DAX was up 0.3 percent to 7,491. France’s CAC-40 slipped 0.1 percent to 3,976.
Wall Street was poised to open slightly lower after a banner day. Dow Jones industrial futures pulled back 0.1 percent to 12,702 while S&P 500 futures fell 0.2 to 1,353.
Analysts said that a strong jobs report could boost the dollar, even though the U.S. currency often drops on good economic news as investors use it as a safe haven.
Ahead of the jobs data, the euro was down 0.7 percent to $1.4259.
Jane Foley of Rabobank said stocks were also being buoyed by indications that Japan is recovering from its March 11 tsunami that caused major supply disruptions throughout the global economy.
“Not only has the market’s mood been bolstered by yesterday’s far better than expected US ADP private payrolls release … but an improved outlook from Asia is also supporting market sentiment,” she said.
Earlier, Japan’s Nikkei 225 gained 0.7 percent to close at 10,138, while Hong Kong’s Hang Seng index added 0.9 percent to 22,726.
Mainland Chinese shares were more cautious. The Shanghai Composite Index gained 0.1 percent to 2,797.77, while the Shenzhen Composite Index was virtually flat at 1,201.50.
Benchmark oil for August delivery was down 53 cents to $98.13 a barrel in electronic trading on the New York Mercantile Exchange after surging more than $2 the previous day.