Friday, July 5, 2019

Markets tumble after jobs report

Dow dropped 216, decliners over advancers 3-1 & NAZ sank 73.  The MLP index was steady in the 253s & the REIT index sold off 6+ to the 387s.  Junk bond funds fluctuated & Treasuries were sold heavily after the jobs report.  Oil slid lower in the 57s & gold plunged 29 to 1391.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil57.61

GC=FGold   1,391.20
 -29.70 -2.1%

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Stocks traded lower after the better than expected monthly nonfarm jobs report.  Markets reopen following Wed's record setting session & the Jul 4th holiday.  The Jun employment report showed 224K new nonfarm jobs were created, topping the estimate for 160K.  The May numbers were revised lower by 3K to 72K.  Stocks traded lower as the jobs report dashed hopes of an aggressive interest rate cut by the Federal Reserve this month.  In Asian markets, China's Shanghai Composite added 0.2% on the day & 1.1% for the week.  Hong Kong's Hang Seng traded slightly lower, but up 0.8% for the week.  Japan's Nikkei rose 0.2% & added 2.2% for a 5th straight week of gains.  In Europe, London's FTSE slipped 0.5%, Germany's DAX is down 0.6% & France's CAC was down 0.6%.

US stocks traded lower as strong jobs report chilled chances of an interest rate cut

US employers added 224K jobs in Jun, beating expectations of 160K likely quelling some concerns about an impending economic slowdown on the heels of a worse-than-expected month for job creation.  The unemployment rate ticked up slightly at 3.7%, while the labor force participation rate was also little unchanged at 62.9%.  Average hourly earnings, meanwhile, rose by 6¢ to $27.90.  Over the year, average hourly earnings have increased by 3.1%, slightly missing expectations of 3.2% growth.  The number of positions added in May dropped to 72K, down from a previously forecast  of 75K.  The report comes after disappointing job growth in the private sector, with employers adding just 102K jobs to their payrolls in Jun, falling short of expectations for 140K.  The report was critical for the Federal Reserve's meeting at the end of Jul & could give policymakers at the central bank pausing about lowering the benchmark federal funds rate, despite pressure from the White House to do so.  But traders are pricing in a 100% chance of a cut.  Trade rhetoric cooled last weekend, after Pres Trump & Chinese Pres Xi Jinping agreed, during a meeting at the G20 summit, to resume negotiations in the year-long conflict.  The most notable job gains occurred in the professional & business services, which added 51K jobs, as well as in health care, with the addition of 35K jobs over the month, & transportation & housing, which created 24K jobs.

US job growth rebounds with 224,000 created in June, quelling fears of economic slowdown

China stressed again that in order to secure a trade deal, the US needs to immediately scrap all the tariffs it has imposed on Chinese goods in the year-long conflict.  The US has placed 25% tariffs on $250B worth of Chinese goods, although Pres Trump agreed to a ceasefire after meeting with Chinese Pres Xi Jinping at the G20 summit last week.  Trump said he would consider lowering the tax rate to 10% from the proposed 25% during “phase two.”   The leaders of the world's 2 largest economies also said they will resume trade negotiations.  But for any deal to be reached, the remaining tariffs must be removed, according to Chinese Ministry of Commerce spokesman Gao Feng.  “The U.S. tariff hike on Chinese products was the trigger for bilateral trade frictions, so all the additional tariffs imposed since [the beginning of the trade war in July 2018] must be scrapped once there is a deal,” Gao told reporters yesterday.  In Mar, however, Trump said that he wanted some tariffs to remain in place for a “substantial period of time” -- possibly extending beyond any trade agreement.   Trade talks between the US & China soured at the beginning of May when a near-deal crumbled after US officials accused China of reneging on some of its promises.

China says trade deal not possible unless US lifts all tariffs

Larry Kudlow, director of the National Economic Council, is “very optimistic” about the health of the US economy but believes the Federal Reserve should “take back the interest rate hike” it made in Dec because of low inflation.  “We are still in a very strong prosperity cycle...We have very good pro-growth policies, low taxes, deregulation, opening energy, trade reform. I think the incentives of our supply side policies are working,” Kudlow added after the release of the Jun jobs report.  Payroll growth rebounded sharply in Jun as the US economy added 224K jobs versus 165K expected, according to the Labor Dept.  Wage growth fell short of expectations however & the unemployment rate ticked higher.  While seeing a strong economy, Kudlow still thinks the Fed should ease monetary policy, & the reason for that is the “rock-bottom” inflation rate.  Inflation is “way below the Fed’s target and what most people want and that’s the reason they should take back the interest rate hike,” Kudlow said.  “With a weak global economy taking out an insurance policy is not a bad thing...I just don’t want anything to interfere with this strong prosperity cycle.”

Kudlow: Jobs report shows country is in a 'very strong prosperity cycle,' but Fed should still cut

Stocks were sold after the strong jobs report dampened hopes for a Fed rate cut (at the end of the month).  That meeting is still a long way off.  Meanwhile China is bargaining tough on the trade deal, which is more meaningful for the stock market.  Even with today's selloff, the popular averages are just under record highs.

Dow Jones Industrials

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