July 5 – Trading desks are a bit more thinly staffed across much of Wall Street today, as many traders choose to extend their Independence Day holiday through the weekend. Yet, those who are present are focused on jobs, following the release of today’s monthly jobs report by the Department of Labor. Stock futures had a steady to firmer tone to them following the release of the employment data this morning, as the markets prepare to open again following the holiday break. The VIX is still trading near 12 currently, while the dollar index is trading near 105.0 after setting fresh three-week lows this morning. Treasury yields are notably lower following the jobs data, with yields on 10-year Treasuries trading near 4.31%, while yields on 2-year Treasuries are trading near 4.64%, after breaking to fresh three-month lows this morning. However, we continue to see the yield curve inversion narrow this morning. Crude oil prices are mixed this morning, as Hurricane Beryl slams into the Yucatan Peninsula on its way toward the Gulf of Mexico, with prices trading just below 11-week highs. The grain and oilseed market will have an old-fashioned morning open this morning following the holiday break, with a mixed open expected, with wheat leading the way higher on strong export sales in this morning’s USDA weekly export sales report.
The economy created 206K jobs in June, according to this morning’s monthly jobs report, which came in higher than the 189K expected by analysts. However, the May number was revised to 218K jobs created, down from the 272K originally reported. Furthermore, the unemployment rate ticked higher to 4.1%, up from expectations that it would remain at 4.0%., as the job participation rate ticked upward to 62.6%. Manufacturing lost 8K jobs in June, while government added 70K jobs, which was well above the 49K jobs that it typically adds each month. Healthcare added 34K jobs in June, while construction added 27K jobs, and retail lost 9K jobs.
Average hourly earnings rose another 0.3% month-on-month in June, down from 0.4% in May, but matching analyst expectations. That put average hourly earnings up 3.9% year-on-year, down from 4.1% the previous month, but again matching analyst expectations. The average workweek remained unchanged in June at 34.3 hours. Wage inflation remains too high to bring service sector inflation down toward the 2% level, but it’s moving in the right direction. Once again, Wall Street appears to be interpreting today’s numbers through a filter of optimism that the jobs sector is moving in the “right” direction to justify a rate cut, even though that “right” direction means that the economy is slowing. Bad news is good news once again.
Crude oil prices continue to hover near two-month highs on rising geopolitical risks in the Middle East, and on the presence of a Category 2 hurricane approaching the Gulf of Mexico. Hurricane Beryl is expected to weaken to a tropical storm as it crosses the Yucatan Peninsula today, before briefly restrengthening to hurricane status before reaching the Texas coastline near Brownville Sunday night. Beryl’s winds are not expected to be a problem for oil platforms at this point, although the heavy rainfall associated with the storm could prove problematic, especially if its path curves to hug the coastline as some models suggest, leading to problems for port activity and refineries near the coast. Other price support comes from chatter in the cash market that China has asked its state oil companies to purchase roughly 60 Mbbl of crude oil from July to March to stock up, which would be one of China’s largest purchases in many years. This would prove to be one more area where China is seen to be building reserves of essential commodities as tensions with the West continue to increase. Chinese President Xi Jinping warned members of the Shanghai Cooperation Organization (SCO) at their conference this week of the risks of a Cold War, while challenging them to resist “external interference” from the West. Belarus joined the SCO at this week’s meeting, while Egypt, Saudi Arabia, and other Gulf States have become “dialogue partners” in recent years.
Worries about new stresses for China’s middle class weighed on China’s stock market this week, amid a media report that authorities would implement a cap on financial worker salaries around 3 million yuan ($412,460), which would be a sharp cut from previous years. The media report indicated that the limit would be applied to all state-backed brokerages, mutual fund firms, and banks. The move could be a response to the need for financial companies to adjust their costs to align with shrinking industry profits during the current economic downturn. However, the administrative order shocked other industries as well, raising fears that they could see a wider range of wealth distribution policies to align with Xi Jinping’s goals for common prosperity. China’s markets translated the move as a hit to already low market expectations about China’s economic future. China’s CSI 300 traded to its lowest level since February today amid the ongoing economic worries that policymakers have thus far been able to assess due to their greater commitment at trying to support the yuan. China seems willing to sacrifice its economic recovery for the sake of dethroning the U.S. dollar.
