HOT AIR BALLOON FLIGHT

By Julia Horowitz • Friday, September 3

Good morning. In today's newsletter: There may be two ways to read Friday's jobs report. Plus, China will create a stock exchange in Beijing, and unpacking a bumpy week for Virgin Galactic shares.

 

US stock futures are slightly higher as Wall Street waits for employment numbers. Markets in Europe were mixed in early trading, while stocks in Japan jumped 2% after Prime Minister Yoshihide Suga said he would step down.

 

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MARKET FLASH

There may be two ways to read Friday's jobs report

 

All eyes are on the US jobs report for August, due Friday, as the Federal Reserve weighs when to start pulling back support for the economy.

 

What's happening: Economists polled by Refinitiv predict that 728,000 jobs were added last month. We'll find out shortly if they're correct.

 

If that many positions were created, there will be two ways to read the data.

 

On one hand, 728,000 jobs is incredibly strong by pre-pandemic standards. Analysts think it would likely be enough to signal to Federal Reserve Chair Jerome Powell that the economy is making "substantial further progress," allowing the central bank to move ahead with plans to begin tapering bond purchases by the end of the year.

 

Another positive sign: Last week, 340,000 Americans filed for initial jobless benefits, a pandemic-era low. 

 

Yet 728,000 jobs would also mark a slowdown from July, when 943,000 jobs were added, and June, which saw 938,000 job gains.

 

That could be seen as an indication that the Delta variant is weighing on the economy, muddying the outlook and making it harder for the Fed to assess conditions on the ground.

 

Economists polled by Refinitiv had been expecting 750,000 jobs to be added in August, but revised down their forecasts after a disappointing reading from the ADP report on private sector payrolls published Wednesday.

 

If the Delta effect is bad enough, it could convince the Fed to sit tight for longer. TD Securities said that if the US economy added just 400,000 jobs in August, its forecast, it would "increase the probability of a formal [tapering] announcement coming at the December rather than the November [Fed] meeting."

 

Watch this space: Data from industries most exposed the coronavirus situation will get an especially close look.

 

"I'm paying particular attention to restaurants here as leisure and hospitality remains the sector with the largest job deficit and the one hit the hardest in the recession," Elise Gould, senior economist at the Economic Policy Institute, a left-leaning think tank, wrote in a blog post. "It's likely that the strong growth we've seen in that sector in recent months will slow as some [people] reduce their social interactions at bars and restaurants."

 

Investor insight: You'd think Wall Street would panic if it's evident that Delta is weighing on the jobs numbers. But think again.

 

"The Delta variant of Covid-19 is softening data and easing any fears of [the economy] overheating, without really challenging the reopening theme because (nearly) everyone thinks this is a temporary challenge," Societe Generale strategist Kit Juckes told clients Friday morning. "And the Delta variant delays monetary policy normalization for even longer."

 

In other words: The surge in Covid-19 cases in the United States could make investors less worried about inflation and more confident that the Fed will keep the money taps on for longer. That's a recipe for stocks to continue their record run, even as the virus outlook darkens.

VOICES

Match pledges to help those affected by Texas abortion law 

"The company generally does not take political stands unless it is relevant to our business. But in this instance, I personally, as a woman in Texas, could not keep silent."

 

MATCH GROUP CEO SHAR DUBEY

 

Read more from CNN Business.

CHINA MONITOR

China will create a stock exchange in Beijing

President Xi Jinping is making one thing very clear: In China, all roads in business and finance now lead to Beijing.

 

The latest: Xi announced Thursday that China will set up a new stock exchange in the nation's capital and political center, saying that he wanted to create a venue for "service-oriented" and "innovative" businesses, my CNN Business colleague Laura He reports.

 

China already has two stock exchanges on the mainland, but they are located in Shanghai and Shenzhen, far away from Beijing. The Shanghai Stock Exchange, which was established in 1990, hosts mostly large-cap companies, including state-owned enterprises, banks and energy firms. The Shenzhen Stock Exchange has a bigger proportion of tech companies and small or medium-sized firms.

 

Step back: The move comes as the Chinese government's regulatory crackdown on large private companies intensifies. Beijing has been working for nearly a year to rein in their power and influence.

 

Firms have taken public steps in recent days to signal their fealty to the Chinese Communist Party's objectives. Alibaba said Friday that it's pouring $15.5 billion into Xi's drive to achieve "common prosperity." 

 

"Alibaba is a beneficiary of the strong social and economic progress in China over the past 22 years," CEO Daniel Zhang said in a statement. "We firmly believe that if society is doing well and the economy is doing well, then Alibaba will do well."

 

Alibaba's pledge comes just a week after another major Chinese e-commerce firm, Pinduoduo, vowed to hand over its entire profit for the last quarter to rural development projects in the country.

UP NEXT

The US jobs report for August posts at 8:30 a.m. ET. The ISM Non-Manufacturing Index, which tracks the US services sector, follows at 10 a.m. ET.

 

Coming next week: US markets are closed Monday for Labor Day. After that, will stocks be off to more record highs?

WHAT WE'RE READING AND WATCHING

▸ Jury in Elizabeth Holmes trial has been selected (CNN Business)
▸ Biden administration taps emergency oil stockpile (CNN Business)
▸ Walmart raises wages for more than 550,000 workers (CNBC)
▸ Sugar prices soar after Brazilian cold snap (Wall Street Journal)
▸ Bill Gross lashes out at 'garbage' government bonds (FT)
▸ Weaker sales take a bite out of Chewy's stock (CNN Business)

FINAL WORD

A bumpy week for Virgin Galactic shares

It's been a turbulent week for shares of Richard Branson's Virgin Galactic.

 

On Tuesday, the stock soared almost 9% following a bullish analyst report on the state of the space tourism industry. Then came Wednesday, when the US Federal Aviation Administration confirmed it's investigating Branson's flight to space in July.

 

The New Yorker was the first to report that the FAA is looking into the journey after warning lights showed up on the dashboard of Virgin Galactic's SpaceShipTwo — signaling that the vehicle was on a wayward trajectory — during the trip.

 

Virgin Galactic will not be permitted to to conduct another spaceflight until the FAA's "mishap investigation" concludes. Shares fell back 3% on Thursday. 

 

Worth noting: Branson's flight was only the fourth trip to space that Virgin Galactic has completed following a tragic 2014 test flight that killed one pilot and badly injured another. Of those four trips, at least two have had serious safety issues.

 

The news is a reminder that even though Virgin Galactic is now a $6.7 billion company — and is selling tickets to those that can afford them — the viability of its business remains an open question. Investors climb aboard at their own risk.