US open: Stocks a little lower after jobs data; debt ceiling deal in focus

US stocks were a little lower in early trade on Thursday after the House of Representatives passed the debt ceiling bill agreed last weekend, as better-than-expected jobs data sparked worries about rate hikes.

At 1525 BST, the Dow Jones Industrial Average was down 0.3%, while the S&P 500 was flat and the Nasdaq was 0.1% lower.

The debt ceiling bill still needs to get through the Senate and be signed by President Joe Biden ahead of the deadline to avert debt default.

Russ Mould, investment director at AJ Bell, said the passing of the bill by the House of Representatives virtually guarantees it will be signed off ahead of the extended 5 June deadline.

"This positive driver for stocks may not last as a US Treasury which has been draining its account at the Federal Reserve to keep the government going, thereby injecting significant liquidity into the system, reverses this policy and starts tapping the debt markets to bolster its coffers," he said.

Investors were mulling the latest data from ADP, which showed that private sector employment rose more than expected in May. Employment increased by 278,000 from April, versus expectations for a 170,000 jump.

Small businesses with fewer than 50 employees added 235,000 jobs, while medium businesses with between 50 and 499 employees added 140,000. Large businesses with more than 500 employees shed 106,000 jobs.

The service sector created 168,000 jobs, while the goods-producing sector saw a 110,000 increase.

The figures also showed that job changers saw a 12.1% increase in pay, down a full percentage point from April. For job stayers, the increase was 6.5% in May, down from 6.7%.

Figures from the Labor Department showed that the number of Americans filing for unemployment benefits rose a little less than expected last week.

US initial jobless claims increased by 2,000 from the previous week’s upwardly-revised level to 232,000. This was below expectations for a jump to 235,000. Meanwhile, the previous week’s level was revised up by 1,000.

The four-week moving average came in at 229,500, down by 2,500 from the previous week's average, which was revised up by 250 to 232,000.

Axel Rudolph, senior market analyst at IG, said that the much stronger ADP report "led to a sharp rise in the probability of another rate hike being seen in June".

"According to the CME FedWatch tool, whereas around 45% of investors expected the fed funds rate to rise to between 5.00% to 5.25% in June ahead of the ADP employment report, around 74% did so after the report with 26% vying for a rate hike to 5.25% to 5.50%," he said.

Also on Thursday, ISM’s manufacturing index fell to 46.9% in May from 47.1% a month earlier, versus expectations of 47.0%. It remained in contraction territory for the seventh month in a row.

In corporate news, Salesforce slumped after the software company’s first-quarter results.

Macy’s shares fell after the department store chain cut its annual sales and profit forecasts as it said demand trends in its discretionary categories weakened further in March.

For 2023, it now expects net sales of between $22.8bn and $23.2bn, down from previous guidance of $23.7 to $24.2bn. Comparable owned-plus-licensed sales are expected to decline by 6% to 7.5%, versus previous guidance for a fall of between 2% and 4%.