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Market Brief – Friday 7/5/19

The market was shocked by a higher-than-expected June Nonfarm Payroll report that showed a +224k increase in jobs as my prediction of a much lower print was completely wrong. Helping my prediction was the BLS Birth-Death model which determined that +102k of the jobs created were from newly formed businesses, which the BLS has no evidence to confirm or deny, as they make this number up on a monthly basis. For the moment, the actual number of jobs created was +122k.

Average hourly earnings continue to rise but at a slower-than-expected pace. Wages in June increased +0.2% MoM and +3.1% on an annualized basis. The big surprise in the payroll report was the increase in multiple-job holders, which increased +301k in June. According to the BLS, a multiple-job holder has two or more jobs.

In overnight trading, German Factory Orders collapsed -2.2% MoM and -8.6% on an annualized basis. China reiterated that there will be no trade deal unless the U.S. removes its tariffs. China also threatened to stop all agricultural imports from the U.S., but the data is showing that China is still purchasing our crops.

After today’s strong headline report for June payrolls, investors who have been betting on a Fed rate cut later this month are starting to realize it is unlikely the Fed will cut rates. Expectations of a -0.5% cut in the Federal Funds rate have dropped with scant hopes of a -0.25% cut. At best, investors will likely have to wait until September’s FOMC meeting to see if the economic data has turned enough to cause the Fed to cut.

Stocks fought back against their early decline and closed slightly lower on the day. Treasury yields rose following the payroll report but ran into stiff resistance. Physical gold sold off in early trading but like stocks, found buyers. Agricultural commodities sold off a bit on fears that China will stop buying our crops.