September 6 – Wall Street looked to this morning’s jobs report to provide more clarity following mixed data released on Thursday that left traders worried about our economy. This morning’s monthly jobs report is the final significant employment data to be released ahead of the next meeting of the next Federal Open Market Committee meeting mid-month. As such, it set the tone for the next couple of weeks. Stocks reacted with sharp moves in both directions when the data was released, because once again, it was mixed in nature leading to more ambiguity. In the end, stock futures moved higher on better expectations of a 50-basis point rate cut – bad news is good news. The VIX is trading near 19 following the data release, while the dollar index is trading near 101.0, which is just above one-year lows. Yields on 10-year Treasuries are trading near 3.73%, after posting fresh 15-month lows, while yields on 2-year Treasuries are trading near 3.71%, erasing the two-year inversion after falling to their lowest level since March of 2023. Crude oil prices are bouncing off nine-month lows, while the grain and oilseed markets are mixed as they consolidate above multi-year lows.
The economy created 142K jobs in August, falling short of the 160K expected by analysts. Furthermore, traders took note that the July number was revised down to 89K jobs created, versus the 114K originally reported. That’s a low number that will raise questions about whether the August number will be revised lower as well. Private payrolls added 118K jobs in August, which is above yesterday’s ADP estimate of 99K jobs created, but the July number was revised to 74K private sector jobs created, down from the 97K originally reported. Manufacturing lost 24K jobs during the month, while the previous month was revised up to 6K jobs created. In the end, the above numbers is what the market initially focused on, raising expectations of a 50-basis point rate cut in two weeks.
But there was also data arguing for restraint in rate cuts. The unemployment rate slipped lower in August to 4.2%, down from 4.3% the previous month. That’s a historically low number. The labor participation rate was essentially unchanged at 62.7%. The number of temporarily laid off people fell by 190K to 872K in August, while the number of permanent job losers was essentially unchanged at 1.7 million. The number of long-term unemployed (27 weeks or longer) was virtually unchanged as well at 1.5 million. Construction employment rose by 34K in August, while healthcare added 31K, although that represents a slowdown for that sector. In addition, average hourly earnings were up 0.4% month-on-month, doubling the gains seen the previous month, and up 3.8% year-on-year, up from 3.6% the previous month. The average workweek also ticked higher to 34.3 hours. This latter set of data would argue against aggressive rate cuts by the Fed that could fuel another round of wage inflation. Yesterday’s Challenger Job Cut report showed the potential for three times as many people to be laid off in the weeks ahead versus the previous month’s expectations. But the above data reflects longer workweeks with higher wages, suggesting some optimism among firms. That again is a mixed message, suggesting that the data does not clearly indicate justification for a 50-basis point rate cut. This realization moderated rate cut enthusiasm as Wall Street dug into the data and digested it.
China’s consumer confidence index hit a fresh one-year low at the end of July, based on data released today. The index fell to 87.1 at the end of July, down from 87.4 the previous month, and just above the record low of 86.3 posted in November 2022. China’s consumer confidence index is generated by a monthly survey of 6,480 individuals from 15 provinces, conducted by the National Bureau of Statistics. It measures consumer confidence six months out on a 200-point scale, with 100 reflecting neutrality. The index peaked in February 2021 immediately following the pandemic reopening, but then dipped below 100 in April of 2022, and it has remained below 100 ever since then. The low level of consumer confidence reflects a reluctance by consumers to spend money, especially on big ticket items. That in turn reduces orders for good to be manufactured at a time when orders coming from Europe and the United States are also in decline due to deleveraging. The low level of consumer confidence argues for more aggressive action by the government to stimulate the economy, but leaders have been reluctant to do so while U.S. interest rates were relatively high so as to not further weaken the yuan. They want the yuan to be seen as a strong alternative to the dollar on the world market.
Commodity deflation has been the theme for much of the past year except for those times when an asset had a story – whether fundamental or geopolitical. Fund managers punished the grain and oilseed sector the hardest, driving prices to multi-year lows. Short covering lifted prices over the past couple of weeks, although they still lack a strong story, and the farmer is still the “big long,” falling behind in his marketing at current price levels. USDA will weigh in with updated production estimates September 12, while traders watch for rains to return in Brazil.
