[New York Stock Market] Mixed Close Amid Cautious Trading Ahead of May Employment Report

Waiting for Employment Report 'Catching Breath'
Focus on May Employment Report by US Labor Department on 7th
ECB Begins Rate Cuts... Fed Weighs September Cut

The three major indices of the U.S. New York stock market closed mixed within a narrow range on the 6th (local time). Amid ongoing weak employment data, investors took a breather while awaiting the U.S. Department of Labor's May employment report to be released on the 7th.

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On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 38,886.17, up 78.84 points (0.2%) from the previous trading day. The large-cap-focused S&P 500 index fell 1.07 points (0.02%) to 5,352.96, and the tech-heavy Nasdaq index dropped 14.78 points (0.09%) to 17,173.12.

By individual stocks, sportswear brand Lululemon rose 4.79% after reporting quarterly earnings that exceeded market expectations. Discount retailer Five Below plunged 10.6% due to earnings and future outlook falling short of expectations. Nvidia, which surged 5.16% the previous day to a record high following the recent unveiling of its next-generation AI graphics processing unit (GPU) "Rubin," declined 1.14%.

Last week’s initial jobless claims exceeded market expectations. The U.S. Department of Labor reported that initial jobless claims for the week of May 26 to June 1 totaled 229,000, surpassing both the market forecast of 220,000 and the previous week’s 221,000. With recent signs of cooling in the labor market and an increase in initial jobless claims last week, investors are focusing on the upcoming May nonfarm payroll report from the Labor Department. Experts expect May nonfarm payrolls to increase by 185,000 compared to the previous month. In April, payrolls rose by 175,000, falling short of the forecast of 243,000. If another cooling signal in the overheated labor market is confirmed, expectations for the Federal Reserve (Fed) to cut interest rates will likely spread further.

Ross Mayfield, an investment strategy analyst at Baird, said, "The market still says the economy is good and there is no sign of a recession. However, since the Fed has maintained an overly tight policy for too long, once the momentum of labor market slowdown begins, it will be difficult to stop."

On the same day, the European Central Bank (ECB) cut its key interest rates ahead of the U.S., following the Bank of Canada the previous day. The ECB lowered its key rate by 0.25 percentage points to 4.25%, and also cut the deposit rate and marginal lending rate by 0.25 percentage points each to 3.75% and 4.5%, respectively. With easing inflationary pressures and signs of economic slowdown in parts of the Eurozone including Germany, the ECB has pivoted its monetary policy.

With the ECB turning to rate cuts before the U.S., global financial markets are focusing all attention on the timing of the Fed’s rate cuts. Investors expect the Fed to maintain the current key rate of 5.25-5.5% at the Federal Open Market Committee (FOMC) meeting on the 12th, then begin the first cut at the September FOMC, with a high possibility of two cuts within the year. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on that day priced in nearly a 70% chance that the Fed will cut rates by at least 0.25 percentage points at the September FOMC. This is a sharp rise of about 20 percentage points from the 50% level at the end of last month.

Experts also expect the Fed to start cutting rates in September. According to a Reuters survey conducted from May 31 to June 5 of 116 economists, 64% (74 respondents) forecast the Fed will cut rates by 0.25 percentage points in September. Additionally, 59% (68 respondents) expect the Fed to cut rates twice this year for a total of 0.5 percentage points. Only 28% (33 respondents) believe the Fed will cut rates once or not at all this year.

U.S. Treasury yields were slightly lower. The benchmark 10-year U.S. Treasury yield stood at 4.28%, and the 2-year Treasury yield, sensitive to monetary policy, traded slightly down at around 4.72% compared to the previous trading day.

International oil prices rose on expectations of Fed rate cuts. West Texas Intermediate (WTI) crude oil closed at $75.55 per barrel, up $1.48 (2%) from the previous day, while Brent crude, the global benchmark, rose $1.46 (1.86%) to $79.87 per barrel.