Dow slid back 57, decliners over advancers about 5-4 & NAZ fell 55. The MLP index recovered 2+ to the 205s & the REIT index was off 3+ to the 428s. Junk bond funds fluctuated & Treasuries were very heavily sold, raising the yield on the 10 year Treasury 12 basis points to 2.86% (more below). Oil bounced back 1+ to 90 & gold fell 12 to 1794.
AMJ (Alerian MLP index tracking fund)
US job growth unexpectedly accelerated in Jul, defying fears of a slowdown in hiring even as the labor market confronts the twin threats of scorching-hot inflation and rising interest rates. Employers added 528K jobs in Jul, the Labor Dept reported, blowing past the 250K jobs forecast. The unemployment rate, meanwhile, edged down to 3.5%, the lowest level since the COVID-19 pandemic began more than 2 years ago. The uptick in hiring comes amid a growing consensus that the economy is losing momentum as the Federal Reserve hikes interest rates at the fastest pace in decades to wrestle inflation under control. With back-to-back quarterly declines in GDP – the broadest measure of goods & services produced in the nation – the economy meets the technical criteria for a recession. While many economists have argued the strong jobs market has so far prevented the US from sliding into a downturn, job growth momentum is expected to cool markedly in coming months as companies cut staff in order to accommodate for lower demand. Jobless claims have started to steadily tick higher in recent weeks & a plethora of companies have announced hiring freezes or layoffs in recent weeks. The surprisingly strong Jul jobs report, coupled with hotter-than-expected wage growth, could pave the way to a 3rd consecutive 75-basis point increase – triple the usual size – at the Fed' next policy-setting meeting in Sep. Traders are already pricing in a 64% chance of another super-sized increase in the fall. That could create even more burdens for businesses because hiking interest rates tends to create higher rates on consumer & business loans, which slows the economy by forcing employers to cut back on spending.
Payrolls increased 528,000 in July, surging past expectations
Port productivity remains a huge hurdle for the US supply chain as Bs of $s of products are at anchor or landlocked & a shift to use of East Coast ports over West Coast ports creates new pressures. In the past 3 months, vessel capacity between the Far East & the East Coast has risen by 18.9% year on year, according to ocean & air freight research firm Xeneta. While the West Coast continues to have the lead in market share of Far East containers at 59.8%, it is continuing to lose more capacity to the East Coast as logistic managers move away from the West Coast out of fear of a labor strike. In the last 3 months, container capacity also has dropped on the West Coast, by 1.7%. This has an impact on trucking & rail companies that serve the West Coast because there is less container volume to move. Rail company BNSF specifically serve the West Coast ports. On the flip side, it is a boom in rail and truck service on the East Coast with the increase in volume. Norfolk Southern (NSC) & CSX (CSX) are the rail companies that serve the East coast ports. Unlike rail, trucking companies have the ability to serve both coasts. “As more vessels and cargo heads east, there’s been an 11.9% increase in volumes so far this year, with a 7.3% year-on-year increase in May alone,” said Peter Sand, chief shipping for Xeneta. “This pressurizes capacity, and there’s a price to pay in terms of reliability. So, in a way, the East Coast becomes a victim of its own success and the West has the breathing space to recover somewhat.” The lack of breathing space & delay in container delivery, can be tracked thru a vessel's total transit time — the time it takes a vessel to travel from its port of origin to its docking at the destination port. Time is money & a vessel or container at rest takes both out of the supply chain for faster use. It is also one of the drivers of rising container prices.
As East Coast ports see more China trade, expect bottlenecks for supply chain
The 10-year Treasury yield rose to 2.79% on the back of a stronger-than-expected jobs report for Jul. The data showed nonfarm payrolls increase 528K last month & surpass expectations of 258K. At the same time, wage growth rose with average earnings climbing 0.5% for the month & 5.2% over last year. Today's move marks a reversal from the recent trend, which saw the 10-year yield trending lower on fears the Fed’s hiking campaign was tipping the economy into a recession. Earlier this week, the 10-year yield fell to 2.50%, its lowest since Apr. The 10-year last traded 11 basis points higher, while the yield on the 30-year Treasury bond was last up nearly 7 basis points & trading at 3.026%. Meanwhile, the 2-year jumped 17 basis points to 3.209%. Yields move inversely to prices. Investors are closely monitoring the health of the US economy after recent numbers showed a 2nd consecutive negative GDP reading.
U.S. 10-year Treasury yield jumps to 2.79% after jobs growth blows past expectations
Dow Jones Industrials
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