U.S. stocks poised to rebound, as jobs report steals focus from trade wars

U.S. stock futures pointed to a higher open on Friday, as investors put aside the trade-war fears that prompted the prior sessions losses to focus on the monthly jobs report instead.

Receding fears about political upheaval in Italy also helped boost sentiment, with shares in Europe rallying in the morning hours.

What are the main benchmarks doing?

Futures for the Dow Jones Industrial Average
YMM8, +0.52%
rose 77 points, or 0.3%, to 24,494, while those for the S&P 500 index
ESM8, +0.45%
climbed 9.50 points, or 0.4%, to 2,715. Futures for the Nasdaq-100 index
NQM8, +0.33%
gained 18.50 points, or 0.3%, to 6,995.75.

The major benchmarks logged a downbeat day on Thursday, when the Trump administrations decision to go ahead with tariffs on steel and aluminum imports from the European Union, Canada and Mexico rekindled fears of a global trade war. The Dow
DJIA, -1.02%
ended 1% lower, while the S&P
SPX, -0.69%
fell 0.7% and the Nasdaq Composite Index
COMP, -0.27%
shed 0.3%.

As of Thursdays close, the Dow and S&P were headed for weekly losses of 1.4% and 0.6% respectively, while the Nasdaq was set for a 0.1% rise.

What is driving the market?

Investors picked up stocks that were beaten down on Thursday, when traders were spooked by worries that some of the U.S.s biggest trading partners would retaliate to the import levies.

Canada has promised to slap its own tariffs on a wide range of U.S. goods, including steel, aluminum, food and agricultural products, to come in July 1. Mexico is targeting steel and pipe products, lamps, berries, grapes, apples, cold cuts, pork chops and various cheese products in its own retaliation, for a total value comparable to the U.S. duties.

The EU has been planning its response for some time, with tariffs expected on steel and Harley-Davidson motorcycles among other goods worth $7.5 billion, due to go into effect June 20.

Read: Heres what steel and aluminum tariffs on U.S. allies mean for the metals market

And see: U.S. tariffs only add to the obstacles for Nafta negotiations

In addition, U.S. stock futures were mirroring sharp gains in Europe, where relief that Italy now has an agreed government swept the markets.

Populist parties the League and the 5 Star Movement on Thursday evening struck a deal to form a coalition government, ending months of political deadlock and averting new elections this summer. Analysts had feared a summer ballot essentially would be a referendum on the euro and bring more power to the countrys euroskeptic parties, raising the risk of a euro crisis.

Which economic data are in focus?

Traders were hoping for some good news from the nonfarm payrolls report, due at 8:30 a.m. Eastern Time. Economists pulled by MarketWatch expect that 200,000 jobs were added to the economy in May, up from 164,000 in April. The unemployment rate is expected to remain at 3.9%, while wages are seen up by 0.2%.

The ICE U.S. Dollar Index
DXY, -0.06%
was up 0.1% at 94,054 ahead of the data. The yield on 10-year Treasury notes
TMUBMUSD10Y, +1.17%
rose 4.9 basis points to 2.879%.

Check out: U.S. jobs report expected to point to better hiring and higher interest rates

At 9:45 a.m. Eastern Time, an update on manufacturing is expected when Markit releases its purchasing managers index for May. Thats followed by the ISM manufacturing index for the same month and a reading on construction spending in April, both scheduled for 10 a.m. Eastern.

Monthly figures on auto sales are expected to trickle out through the day.

In central bank speakers, Minneapolis Fed President Neel Kashkari is scheduled to participate in a panel discussion on Collaborative Strategies to Build Tomorrows Workforce in Minneapolis at 8:55 a.m. Eastern Time.

See: MarketWatchs economic calendar

What are strategists saying?

After such a strong influence from politics on trading over the past few days, investors will be relieved to have the focus switch back to economic data, with the release of the U.S. nonfarm payroll figures, said Jasper Lawler, head of research at London Capital Group, in a note.

A solid report is expected, and if delivered, could cement expectations for a rate hike in June when the Fed meets in less than two weeks, he added.

The market is pricing in a 90% probability of a June interest rate rise from the Federal Reserve, according to the CME Groups FedWatch tool.

Read: Cleveland Feds Mester says the Italian turmoil and a flattening yield curve havent changed her interest-rate view

Which stocks are in focus?

Shares of Lululemon Athletica inc.
LULU, -0.55%
jumped 7.1% ahead of Fridays opening bell. The apparel retailer late Thursday reported forecast-beating earnings and issued better-than-expected guidance.

Zuora Inc.
ZUO, +1.09%
rallied 8% in thin premarket trade after the business-subscription software company late Thursday announced results and an outlook that topped expectations.

On a more downbeat note, shares of Costco Wholesale Corp.
COST, -0.70%
slipped 1% before the open after the retailer late Thursday reported sales below forecasts. The company also said itll raise its minimum wage for 130,000 U.S. store staff.

Abercrombie & Fitch Co.
ANF, -7.34%
was expected to report earnings ahead of the opening bell on Friday.

What are other markets doing?

Shares in Asia closed mixed, with Chinas Shanghai Composite Index
SHCOMP, -0.66%
ending 0.7% lower as the long-awaited introduction of Chinese shares to MSCI indexes failed to make a splash. The Chinese benchmark rallied 1.8% on Thursday in anticipation of the MSCI debut.

In Europe, Italian stocks
I945, +2.60%
led the charge higher with a 2.7% rally. Concerns over Italys political drama triggered shock waves in the financial markets on Tuesday, but the nerves have since subsided.

The yield on 10-year Italian government debt
TMBMKIT-10Y, -7.03%
on Friday morning was down 27 basis points at 2.585%, after reaching a four-year high of 3.072% on Tuesday.

Read: Think the Italy panic was bad? Just wait until central banks turn off the spigot

Oil prices
CLN8, -0.84%
were higher, while gold
GCQ8, -0.21%
was slightly lower.

Sara Sjolin

Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.

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Quote References YMM8 +128.00 +0.52% ESM8 +12.25 +0.45% NQM8 +23.00 +0.33% DJIA -251.94 -1.02% SPX -18.74 -0.69% COMP -20.34 -0.27% DXY -0.06 -0.06% TMUBMUSD10Y +0.03 +1.17% LULU -0.58 -0.55% ZUO +0.24 +1.09% COST -1.40 -0.70% ANF -1.89 -7.34% SHCOMP -20.34 -0.66% I945 +566.86 +2.60% TMBMKIT-10Y -0.19 -7.03% CLN8 -0.56 -0.84% GCQ8 -2.80 -0.21% Show all references
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E-Mini Dow Jun 2018 U.S.: CBOT: YMM8 $24,545.00 +128.00 (+0.52%)

Volume 27337
Open $24,440
High $24,556
Low $24,419
P/E Ratio 0
Div Yield 0
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