Dow fell 23, decliners over advancers 3-2 & NAZ went up 120. The MLP index dropped 2 to 199 & the REIT index slid lower in the 376s. Junk bond funds were mixed & Treasuries saw more buying which lowered yields (more below). Oil was up chump change taking it into the 84s & gold shot up 17 to 2387 (1 month high).
Dow Jones Industrials
US employers added 206K jobs in Jun, more than expected & slightly below the revised 218K added in May, a sign the labor market remains solid. The unemployment rate ticked up slightly to 4.1% vs 4%. This as both Apr & May data points were adjusted lower by a combined 111K, signaling fewer jobs created. This may please the Federal Reserve, which is looking for signs inflation is easing. Average hourly earnings, another inflation tracker, rose 3.9% year-over-year, in-line with estimates. Hiring was the strongest for gov, social assistance & healthcare, while the retail & manufacturing sectors shed workers. This follows the closely watched ADP report which showed companies added 150K jobs last month, missing the 160K gain that economists predicted & down from the revised 157K figure in May. Both data points, closely watched by the Federal Reserve, will influence when policymakers will begin their long anticipated rate-cutting cycle. Chair Jerome Powell, speaking earlier this week, reiterated the need for inflation to be lower. "We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing, how tight our policy is," he said during remarks at the European Central Bank Forum. Market watchers are currently pricing in the first-rate cut at the Sep meeting, according to the CME's FedWatch Tool, which tracks the probability of rate moves.
Unemployment rate ticks up as economy adds 206K jobs in June
Treasury yields dropped as the latest US jobs report showed an unexpected rise in the unemployment rate. The yield on the 10-year Treasury fell more than 6 basis points to 4.29% & the 2-year Treasury yield declined 7 basis points to 4.64%. Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%. The unemployment rate unexpectedly climbed to 4.1%, the highest level since Oct 2021. The forecast expected the unemployment rate to hold steady at 4%. Nonfarm payrolls increased by 206K for the month, better than the 200K forecast, though less than the downwardly revised gain of 218K in May. The jobs data could make the Federal Reserve to consider a Sep rate cut, sooner than the market had anticipated. While policymakers want to see more progress on inflation before lowering interest rates, a worsening labor market could increase the urgency to act soon. Fed Chair Jerome Powell said recently that progress had been made on inflation coming down, but that the central bank wanted to be more confident that it was returning to the 2% target before loosening monetary policy. Fresh inflation data is due to be released next week.
10-year Treasury yield falls after unemployment rate rises unexpectedly
US crude oil was little changed but was on pace for a 4th straight weekly gain as falling inventories show an uptick in demand. Oil market analysts have been forecasting a tighter market in the 3rd qtr as summer fuel demand picks up. US inventory data appeared to confirm those forecasts, with crude stocks declining by 12.2M barrels and gasoline falling by 2.2M barrels last week. West Texas Intermediate Aug contractwas $83.88 per barrel, unchanged, & YTD US crude oil has gained 17%. Brent Sep contract was $87.29 per barrel, down 13¢ & YTD to date, the global benchmark is ahead by 13%. “With oil inventories beginning to decline as a result of solid demand and constrained supply growth, investors have started to build oil exposure again,” Giovanni Staunovo, commodity analyst at UBS, said. UBS is forecasting that global oil demand will grow by 1.5M barrels per day, or bpd, this year, above the long-term growth rate of 1.2 million bpd. The bank is forecasting bigger inventory declines in the coming weeks as OPEC+ keeps production cuts in place thru Sep.
U.S. crude oil heads for fourth straight weekly gain on solid demand outlook
Americans are still struggling with the price pressures affiliated with persistent inflation & the rising cost of goods. It looks like the FED will need more encouraging information to start cutting interest rates.
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