Futures slip with focus on jobless claims as Fed underwhelms
US stock futures fell on Thursday as investors braced for data likely to show persistently high levels of weekly jobless claims, adding to concerns about an economic rebound a day after the Federal Reserve issued an underwhelming stimulus plan.
The Labor Department's weekly report, due at 8:30 a.m. ET, is expected to show about 850,000 Americans filed for unemployment benefits in the week ended Sept. 12, a touch lower than 884,000 in the previous week, but still suggesting the labor market's recovery from the COVID-19 pandemic was stalling. In a news conference on Wednesday, Fed Chair Jerome Powell also indicated a long road to "maximum employment" and said the central bank was limited in its capacity to address some of the gaps around wage growth and workforce participation.
The S&P 500 . SPX sold off after his remarks, with the technology sector .SPLRCT, which had been recovering from a rout earlier in September, tumbling 1.6%. A broader slump in techrelated stocks halted a five-month rally in the benchmark index this month and pushed the Nasdaq into correction.
At 6:37 a.m. ET, Dow e-minis 1YMcv1 were down 239 points, or 0.85%, S&P 500 e-minis EScv1 were down 34.25 points, or 1.01%, and Nasdaq 100 e-minis NQcv1 were down 111.5 points, or 0.99%.The big U.S. banks including Goldman Sachs Group Inc GS.N, Bank of America Corp BAC.N, Citigroup Inc C.N and Wells Fargo & Co WFC.N fell about 1% in thin premarket trading. Carnival Corp CCL.N dropped 3.8% after its British cruiseline P&O Cruises extended a cancellation in sailings until early 2021.
Other cruise operators such as Royal Caribbean Cruises RCL.N and Norwegian Cruise Line Holdings Ltd NCLH.N shed about 2%.German biotech firm BioNTech SE BNTX.O rose 3.1% as it said it was buying a production site from Swiss drugs giant Novartis NOVN.S to boost output of its potential coronavirus vaccine by several million doses.
Meanwhile, Some investors are betting that a bout of election-induced volatility may be just the thing to give the battered dollar a reprieve from its months-long decline. The dollar stands near its lowest level in 16 months after falling more than 9% from its March peak on lower U.S. yields and expectations of comparatively slower U.S. growth. Net futures bets on a lower dollar totaled $32.67 billion, close to their highest point in a decade, the latest data from the Commodity Futures Trading Commission showed.
But the buck tends to rally around U.S. presidential elections, with the dollar index up seven out of 10 times between early September and early December for an average gain of 2.5% since 1980, said Ben Randol, G10 FX and rates strategist at BofA Global Research. Such a move could be even more dynamic this year, as investors brace for the Nov. 3 election in which results may be uncertain or contested, potentially pushing market participants to sell their riskier investments and head for havens such as the dollar.
"A very tight election and contested result will probably be the spark to get people nervous," said Amo Sahota, executive director at currency advisory firm Klarity FX in San Francisco. "That's positive for the dollar." The heap of bets on a lower dollar could potentially exacerbate an upside move if a sharp rally forces bearish investors to unwind their trades and buy back the U.S. currency in a phenomenon known as a short squeeze. "A narrowing race and historical seasonal trends invite more uncertainty and potential drawdowns in crowded trades. Yet that's a squeeze, not a reversal," analysts at TD Securities said in a recent note.
John Floyd, head of macro strategies at Record Currency Management in New York, is betting that the U.S. dollar will rise against its Canadian counterpart, due in part to electionrelated volatility spurring investors into haven assets. Randol, of BoFA Global Research, said the dollar is around 4% undervalued according to the bank's model, which calculates valuation based on interest rate differentials and terms of trade. The bank recently recommended buying the dollar against the Swedish krona and Canadian dollar.
Longer term, the dollar has fewer fans. Expectations that U.S. rates will stay near record lows have dimmed the dollar's attractiveness here to incomeseeking investors. Others believe that perceptions of a more coherent response to the coronavirus crisis in Europe and Asia will keep investors away from dollar-denominated assets. Analysts at Oxford Economics, for example, said any volatility-driven upside in the greenback would likely be temporary, predicting a multi-year decline for the dollar.
Richard Benson, co-chief investment officer at Millennium Global Investments Ltd, is short the dollar against the euro and is betting the currency will continue to depreciate in coming months.