August 4 – Today’s focus is on the jobs sector, and its impact on inflation and on future decisions by the Federal Reserve. Today’s jobs report is just one of many data points that will be considered by the Fed next month, but it is a key data point. Generally, we saw the VIX decline, along with the dollar and Treasury yields, following the release of this morning’s jobs data. The VIX is trading near 15 this morning, which doesn’t reflect panic on Wall Street, but it does reflect somewhat heightened concern from last month. The dollar index is trading near 102.0 as it tracks Treasury yields that are trending lower following this morning’s data dump. Yields on 10-year Treasuries are trading near 4.15%, while yields on 2-year Treasuries are trading near 4.84%. Crude oil prices are modestly higher following a Ukraine strike on a Russian port, while we’re seeing more substantial gains in the grain and oilseed complex on the elevated geopolitical risks this morning.
The economy created 187K jobs in July, which fell below analyst expectations of 200K. Furthermore, the previous month’s total was revised lower to 185K jobs created, down from the 209K originally reported. However, the private sector created 172K jobs in July, which essentially matched analyst expectations, and it was up from a downwardly revised 128K the previous month. Manufacturing saw a net loss of 2K jobs in July as that sector remains in a recession. Yet, the unemployment rate fell to a tight 3.5%, down from analyst expectations that it would remain at 3.6%. Average hourly earnings came in hotter than expected due to the tight jobs market, rising 0.4% month-on-month and up 4.4% year-on-year. That beat analyst expectations of a decline to 0.3% MoM and 4.2% YoY. The Average workweek slipped to 34.3 hours, down from 34.4 hours previously. Wall Street focused on the decline in job creation, while others will focus on the unemployment rate and the hotter-than-expected hourly earnings. This report will not settle that argument. However, based on what it has previously stated, I suspect that the Fed will see this report as justification to sustain a “higher and longer” interest rate policy. That said, there are plenty more data points to emerge before next month’s policy meeting, including another jobs report and a plethora of inflation data.
China will encourage more skilled rural migrants to move from rural areas to the cities in its latest move to stimulate the economy. The property market accounts for at least 30% China’s gross domestic product. Policymakers hope that migrants moving to the cities will increase demand for housing, providing a boost to the property market, while also increasing demand for goods and services in these cities. China is loosening registration requirements for these migrant workers to facilitate the move. China also vowed to ease restrictions on overseas business travelers coming to China for meetings, exhibitions, or investments, but it provided few details.
It was a matter of time before it would happen if the war continued its path of escalation. The world had become numb to lost shipments of Ukraine grain due to Russian strikes on its export infrastructure, because Russia was dumping record amounts of cheap wheat on the world market, and Brazil was doing the same with its record corn harvest. But continued escalation of the war was bound at some point to result in actions that could threaten Russian wheat exports, and possibly oil as well. That would be a game-changer if those events were successful at curtailing shipments. Two Ukraine drones attacked the Black Sea port of Novorossiysk overnight, which houses a naval base, along with serving as a major hub for Russian grain exports. The port is also used for exporting oil from Russia and Kazakhstan, loading roughly 1.8 million barrels per day for shipment. The port was only closed for a few hours before resuming operations, but the war has crossed another line that brings increased risks along with it as we head into another weekend. We’ve already seen the Kerch Strait closed to Russian cargo ships at night due to heightened security risks. Now this escalates the risks another step higher – something the trade will certainly be monitoring. This event does not shut down Russian grain and oil shipments coming from the region, but it raises the risks that such could happen, while also raising the risks of more substantial attack from Russia on Ukraine. The escalation continues, and that raises risks for both the food and energy commodities.
The grain and oilseed markets pushed higher on the above overnight, but as we’ve previously seen, they’ll need to keep feeding the bulls regarding this issue. Otherwise, the focus is expected to return to weak export demand, especially for wheat and corn, while reduced yield risks provide a bit more support for soybeans due to this year’s lower acreage. The forecasts continue to trend wetter and cooler for the Midwest, but traders may want to focus on the heightened geopolitical risks going into a weekend when the war continues, but the markets are closed.
