Markets struggle as the labor market show signs of cooling off

Dow finished up 67, decliners over advancers 3-2 & NAZ gained 164.  The MLP index was off 2+ to 91 & the REIT index added 1+ to 378.  Junk bond funds fluctuated & Treasuries continued to be in demand which reduced yields.  Oil slid back to the the 83s following recent strength & gold jumped 29 to 2389, the highest since May (more on both below).

Dow Jones Industrials 

The Jun jobs report revealed higher than expected job growth, with 206K new jobs created.  However, a 3rd of those jobs were in the gov sector.  Gov employment rose by 70K, which is far higher than the average of 49K over the last year.  Employment in the sector was boosted by local gov, excluding education & state gov.  The health care sector added 49K positions, lifted by increased hiring in ambulatory health care services & at hospitals.  Construction payrolls increased by 27K jobs.  However, the retail sector shed jobs, as did manufacturing.  Professional& business services employment declined by 17K jobs, with temporary help jobs dropping by about 49K.  That likely portends to slower payrolls gains ahead.  Economists say the economy needs to create at least 150K jobs per month to keep up with growth in the working-age population, accounting for the recent surge in immigration.  In a good sign for the Federal Reserve & its battle against inflation, unemployment increased from 4% to 4.1%, & wage growth slowed to a rate not seen since 2021.  Average hourly earnings rose 0.3% last month after advancing 0.4% in May.  In the 12 months thru Jun, wages increased 3.9%.  That was the smallest gain in wages since Jun 2021 & followed a 4.1% rise in May.   Wage growth in a 3-3.5% range is seen as consistent with the Fed's 2% inflation target.  Also notable was the downward revision from Apr & May.  The Apr jobs report was revised downward from 165K to 108K, while the May jobs report was revised down from 272K to 218K.

Jobs report: One-third of the 206K adds in June were in government

Novo Nordisk (NOVO) investors appeared unperturbed by a critical Harvard report that linked weight loss drugs to a rare eye condition.  Semaglutide, which is present in weight loss drugs including NOVO's Ozempic & Wegovy, might be associated with an increased risk of a rare eye disease, according to a study carried out by Harvard Medical School.  Analysts said the study results were “hardly a game-changer,” however.  The Harvard report found that patients with type 2 diabetes or obesity, who are prescribed semaglutide, have an increased risk of nonarteritic anterior ischemic optic neuropathy (NAION), a condition which can lead to loss of vision in one eye.  Patients were more likely to be diagnosed with the eye condition compared to patients who were not prescribed the weight loss drugs, the study found.  While the research paper does suggest “some correlation” with a rare ocular event, the quality of the evidence is “vey low, the error bars are very wide,” according to Deutsche Bank analyst Emmanuel Papadakis.  The worst case scenario would likely be a further update to the label warning section of the drugs, which is “hardly a game-changer,” said Papadakis.  He added that Deutsche Bank generally regards semaglutide medications as “one of the most derisked therapeutic classes in industry history from a safety perspective.”  A spokesperson from NOVO said the optic nerve disease NAION is not an “adverse drug reaction for the marketed formulations of semaglutide” as per the approved labels.  They added that there are “key methodological limitations” to the study such as the “small number of people” with type 2 diabetes or obesity that were exposed to semaglutide and were included in the trial.  “Patient safety is a top priority for Novo Nordisk, and we take all reports about adverse events from use of our medicines very seriously,” the spokesperson added.  NOVO stock rose 3.50.

Novo Nordisk shares shrug off concerns over study linking weight loss drugs to eye condition

Chevron (CVX), a Dow stock & Dividend Aristocrat, is putting workers on furlough at a German biodiesel plant that has been out of operation because of oversupply in the market.  The biodiesel plant in Oeding, in northern Germany, has been idled for a few months, a spokesman said.  “This decision was made in response to a challenging margin environment, primarily caused by alleged fraud and dumping of Chinese biodiesel flooding the market,” the company added.  The move is the latest twist as a surge in Chinese biodiesel exports to the EU has come amid increasing concerns that producers in the bloc are being undercut by companies in Asia that are mixing fuels with cheaper feedstocks & mislabeling them.  Selling biofuels in the EU is attractive because of incentives there, with fuels made from waste products fetching higher prices than those made directly from crops, as it's more sustainable.  The facility, which produces fuel from waste ingredients such as used cooking oil, had recently been upgraded to allow it to handle other feedstocks, including brown grease & a product from the palm industry known as Pome.  The European biodiesel industry has long complained about mislabeling of feedstocks, such as palm oil, that come into Europe.  The European Biodiesel Board, which represents the industry, raised the issue of Chinese imports in a letter to EU policymakers last month.  CVX stock fell 2.40.

Chevron Puts Workers on Furlough at Idled German Biofuels Plant

Gold jumped to a 6-week high after US hiring data pointed to a gradual cooling in the labor market that bolstered expectations for lower interest rates in the coming months.  Bullion was up 1.4% to $2389 an ounce, climbing on data from the US Bureau of Labor Statistics that showed US hiring & wage growth stepped down in Jun while the jobless rate edged up.  Gold drifted in a relatively narrow trading range for most of the past month, but has jumped 2.7% this week as expectations build for a Sep rate cut.  The Bloomberg Dollar Spot Index & 10-year US Treasury yields were both on course for weekly declines.

WTI Crude Falls Off a Seven-Week High Despite High Summer Demand

West Texas Intermediate (WTI) crude oil closed lower, falling off a 7-week high despite robust summer demand.  WTI crude oil for Aug closed down 72¢ to settle at $83.16 per barrel, while Sep Brent crude, the global benchmark, was last seen down 70¢ to $86.73.  Despite today's drop, oil has climbed 13% over the past month on rising demand during the summer driving season, falling US oil inventories & restricted supply as OPEC+ continues 2.2M barrels per day of voluntary supply cuts thru the end of Sep.  Hurricane Beryl is approaching Mexico's Yucatan peninsula as a category 2 storm with 100 mile per hour winds, down from category 5 strength earlier this week.  Beryl is the most powerful storm to ever form in Jun, raising worries of an active & destructive hurricane season in coming months that could disrupt Gulf of Mexico production.  The latest inventory report from the Energy Information Administration is also supporting prices, after the agency reported US oil inventories fell by 12.2M barrels. the largest draw on stocks in a year, with gasoline & distillate inventories also falling.

WTI Crude Falls Off a Seven-Week High Despite High Summer Demand

Signs of looser conditions in labor data earlier this week bolstered the idea that inflation will keep easing, is setting the stage for the Fed to lower interest rates from their current 2-decade high.  Popular stock averages are at or very near record levels.  However the important Dow has been stuck in a rut, near 39K for over 3 months, as shown in its chart above.  Dow rose 257 this week.  Next week brings the most popular inflation readings which could give hints about rate cuts.  On the inflation front, the price of oil has be watched.  Early this year WTI was in the mid 70s & now it's near the mid 80s.  At the same time negative thinking investors keep buying gold.