Market Brief – Friday 8/2/19

As expected, China stated they would retaliate against further U.S. tariffs and wouldn’t be bullied into a trade deal. Fears of an escalating trade war sent stocks and Treasury yields lower in early trading.

July’s Nonfarm Payroll report met expectations with a +164k headline print, but under the covers, the report wasn’t very strong. The BLS Birth-Death model, which estimates the number of new businesses started, counted for +148k of those jobs. The prior two months were revised lower by -41k jobs. When prior payroll reports are being revised lower, it is not a sign of strength.

Average hourly earnings came in higher than expected at +0.3% MoM versus expectations of a +0.2% MoM increase. On an annualized basis, wages are growing at a +3.2% rate. Average weekly hours fell to 34.3, the lowest level since 2011, which equates to -211k jobs lost. The unemployment rate held steady at 3.7%. Today’s payroll report is much weaker than its headline suggests.

The U.S.-China trade deficit hit its 5-month high as President Trump looks to add more tariffs on September 1st. Exports to China are down -18.1% this year and imports are down -12.2%. Petroleum exports, when adjusted for inflation, reached an all-time high.

Factory Orders contracted for the second straight month on an annualized basis, despite a +0.6% MoM gain. May’s Factory Orders were revised lower to -1.3% MoM. Based on the relationship between Factory Orders and Manufacturing PMIs, Factory Orders are likely to fall in the months to come.

Markets were mostly a sea of red today as liquidity dried up. The S&P 500, Nasdaq-100 and DJIA managed to close above their 50-day moving averages, but the Russell 2000 didn’t. Treasury yields were lower across the board as investors look towards government bonds as a flight to safety. Thirty-year Treasury yields are below where they were during the Presidential election.

Physical gold is trying to move higher, but Emerging Markets stocks are indicating that gold should be headed lower. Gold mining stocks were down slightly, while silver miners down quite a bit. Oil and gas producing stocks closed the week lower despite crude oil making a rebound from yesterday’s large drop.

Agricultural commodities are trying to form a bottom ahead of the USDA’s August 12th report that should fix the overly optimistic projections from their prior report. Lumber prices, a strong indicator for both stocks and inflation, are back at their 1-year low and if they fail to hold their current price level, will fall off a technical cliff.