July 3 – This morning’s job data had little impact on the markets, while providing possible insights into Friday’s highly anticipated monthly jobs report from the government. Stock futures continue to consolidate ahead of Friday’s report, while also anticipating tomorrow’s Independence Day holiday in which the markets will be closed. As such, there will be no market commentary tomorrow while the markets are closed. The VIX continues to trade near 12 this morning, while the dollar index trades a bit weaker near 105.4. Yields on 10-year Treasuries are trading near 4.40%, while yields on 2-year Treasuries are trading near 4.74%. Crude oil prices are modestly higher near the $83 per barrel mark, while the grain and oilseed markets were mixed to weaker in overnight trade.
Today’s Challenger Job-Cut report showed corporate announcements in June of potential upcoming layoffs at 48,786, down from 63,816. Today’s number suggests that corporations feel less pressure to reduce their workforce, suggesting that they are less worried about recessionary risks going forward. As such, they have a bigger incentive to hang onto the workforce that they currently have in this tight jobs environment.
The economy created 150,000 non-farm jobs in the private sector in June, according to ADP, down from an upwardly revised 157,000 in May, and below analyst expectations of 161,000. The range of expectations was broad at 100,000 to 195,000 ahead of today’s release. Today’s number didn’t move the needle too much in regard to a market reaction. It suggests that we still have some growth in the jobs sector, but the ADP numbers seem to be a bit more biased to the service sector activity, while perhaps under-reporting the manufacturing sector. As such, the correlation with the government’s monthly jobs report can be disappointing. The bottom line is that today’s numbers don’t provide any red flags to the market ahead of Friday’s big monthly jobs report.
First-time claims for unemployment benefits rose slightly to 238,000 in the week ending June 29, up from 234,000, and above analyst expectations of 233,000. That bumps the four-week moving average to 238,500, up from 236,250 the previous week. Continuing claims for the week ending June 22 jumped another 26,000 to 1.858 million. The four-week moving average for continuing claims increased by 16,750 to 1.831 million. These numbers are continuing to slowly trend higher, suggesting that we could see steps toward a softening jobs market when the government releases its numbers on Friday. As such, we Treasury yields pull back somewhat on this morning’s cumulative data.
Meanwhile, China’s economic challenges continue to increase. Tensions with the West have reduced exports to Europe and the United States, partially due to re-sourcing, and partially due to punitive tariffs on Chinese products, such as EVs. As such, China has been pushing exports to other countries to keep its manufacturing sector operating. Now some of those other countries are also threatening punitive tariffs, creating more challenges for its economy, while Europe is also considering additional tariffs on cheap goods sold by online retailers out of China such as Temu and Shein. Caixin’s service PMI today suggests that business activities in China’s service sector fell to an eight-month low, while still barely holding in expansion territory, as new orders slow. The subindex for business confidence slipped to its lowest level since March 2020 during the pandemic. Chinese authorities are trying to shift their economy to a consumption-based economy like that of the United States, but it’s believed that they will be proposing taxes on consumer goods at this month’s Third Plenum economic summit. Their desire would be to raise revenues for cash-strapped government units, but the increased tax on consumer goods would only act to reduce consumption of the goods that the government is increasingly hoping will support economic growth.
President Xi Jinping is traveling to Kazakhstan to attend the annual summit of the Shanghai Cooperation Organization (SCO), where he will hold bilateral talks with Russian President Vladimir Putin and Turkish President Tayyip Erdogan. The SCO is a security-focused block of nations set up after the breakup of the Soviet Union, with China, Russia, and Central Asian countries the main participants. It has taken on increased importance as China works to expand its Belt and Road Initiative. Xi will seek support for his vision at the meeting, which includes building an orderly multipolar world where countries could benefit from world peace, stability, and economic globalization in a way that goes against approaches by the West.
Momentum traders continue to push soyoil prices off their recent lows, providing modest support for soybeans, while the threat of farmer selling continues to limit the ability of both corn and soybeans to sustain rallies. Wheat prices remain under seasonal harvest pressure, as well as another increase in Russian production by Sovecon.
