Markets edge higher after August private sector jobs data

Dow went up 16, advancers over decliners about 2-1 & NAZ gained 52.  The MLP index inched higher in the 239s & the REIT index was even at 368.  Junk bond funds were little changed & Treasuries had very limited buying, so yields edged lower.(more below).  Oil crawled up pennies in the 81s & gold added 9 to 1974.

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Hiring by US companies slowed more than expected in Aug, pointing to a labor market that is starting to cool in the face of higher interest rates, according to the ADP National Employment Report.  Companies added 177K jobs last month, below the 195K gain that was predicted & is also much lower than the revised 371K increase recorded in Jul.  It marked the worst month for job creation since Mar.  The weaker-than-expected report comes in the wake of an aggressive tightening campaign by the Federal Reserve, which has hiked rates to the highest level since 2001.  Chair Jerome Powell signaled last week that additional rate increases may be on the table as policymakers assess whether high inflation has retreated for good.  In a potentially welcoming sign for the Fed as it tries to wrangle inflation under control, wages continued to moderate in Aug.  Annual pay rose 5.9% last month, the slowest growth since Oct 2021, according to the report.  For workers who switched jobs, wages climbed 9.5%, down from 10.2% the previous month.  "This month's numbers are consistent with the pace of job creation before the pandemic," said Nela Richardson, ADP's chief economist.  "After two years of exceptional gains tied to the recovery, we're moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede."  The notable slowdown in job growth was largely driven by the leisure & hospitality, which added just 30K new employees in Aug after months of strong hiring.  Education & health services accounted for the biggest gains in Aug, onboarding about 52K employees.  That was followed by trade, transportation & utilities, which grew by 45K.

Private sector job growth cools sharply in August to 177,000, worse than expected: ADP

Treasury yields were lower as investors digested reports that suggested weakening economic growth.  The 10-year Treasury yield was down 2 basis points at 4.104%, after having fallen by as many as 10 basis points yesterday & the 2-year Treasury yield was last trading at 4.86% after falling by 3.1 basis points.  Yesterday, it had dropped by as many as 16 basis points.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Private payroll data from ADP showed employers added 177K jobs in Aug, which was lower than the forecast of 200K & sharply below the revised Jul reading of 371K.  That take, coupled with a downward revision in the Q2 GDP to a 2.1% annualized rate of growth, suggests a cooling off in the economy, although the pace is still healthy.  Meanwhile, yields fell yesterday as investors considered economic data, including the latest consumer confidence index which came in at 106.1, lower than the estimate of 116.  The report also showed that consumers’ inflation expectations for the next 12 months increased.  JOLTs job openings data, also yesterday, reflected a fall of available positions to 8.8M In Jul, the lowest level since Mar 2021.  

Treasury yields fall after reports suggest slowing economic growth 

Shares of HP (HPQ) fell after the printer & PC-maker released fiscal 3rd qtr earnings that was underwhelming.  HPQ reported $13B in revenue, down from the $13.4B expected.  EPS came in line with expectations at 86¢, excluding items.  The company also offered weak guidance, citing the fact that PC pricing has not improved as much as it had hoped.  Analysts said the qtr was disappointing, but that PC revenues will likely improve going forward.  However, the company's printing business may be more of a sticking point. The stock fell 2.62 (8%).
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Shares of HP fall 8% following revenue miss

The job data for Aug indicates there will be less pressure to raise interest rates going forward,  The huge storm hitting Florida will pinch the economy, although there will be demand for more repair work.  Trading continues to be light this week.

Dow Jones Industrials

 

Markets rise led by tech stocks

Dow jumped 292 (near session highs), advancers over decliners an impressive 4-1 & NAZ advanced 238.  The MLP index was up in the 238s & the REIT index gained 3+ to the 367s.  Junk bond funds traded higher along with stocks & Treasuries saw significant buying, sharply reducing yields.  Oil rose 1+ to the 81s & gold climbed 16 to 1963 (more on both below).

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The Federal Reserve could raise interest rates again in order to reduce inflation to its targeted levels, according to Fed Governor Michelle W Bowman.  The Federal Open Market Committee (FOMC) meets next in Sep to determine future monetary policy.  "Additional rate increases will likely be needed to get inflation on a path down to the FOMC’s 2% target," Bowman said during a meeting last weekend.  Following its meeting in Jul, the Fed hiked interest rates by another 25 basis points after a brief pause.  The Fed's last rate increase marked the 11th time the central bank has raised interest rates since 2022.  That brought the federal funds rate to 5.25-5.50%, its highest level in 22 years.  But in recent months, inflation has cooled. In Jun inflation slowed to 3%, its lowest level in 2 years.  The drop also marked the 12th straight month that inflation eased.  But this trend may not be sufficient to force the Fed to loosen its grip on monetary policy.  "I will be looking for consistent evidence that inflation is on a meaningful path down toward our 2% goal as I consider further rate increases and how long the federal funds rate will need to remain at a restrictive level," Bowman said.  "I will also be watching for signs of slowing in consumer spending and signs that labor market conditions are loosening."

Fed governor warns more interest rate hikes may be coming

US regulators unveiled plans to force regional banks to issue debt & bolster their living wills, steps meant to protect the public in the event of more failures.  American banks with at least $100B in assets would be subject to the new requirements, which makes them hold a layer of long-term debt to absorb losses in the event of a gov seizure, according to a joint notice from the Treasury Dept, Office of the Comptroller of the Currency, Federal Reserve & Federal Deposit Insurance Corp (FDIC).  The steps are part of regulators’ response to the regional banking crisis that flared up in Mar, ultimately claiming 3 institutions & damaging the earnings power of many others.  In Jul, the agencies released the first salvo of expected changes, a sweeping set of proposals meant to heighten capital requirements & standardize risk models for the industry.  In their latest proposal, impacted lenders will have to maintain long-term debt levels equal to 3.5% of average total assets or 6% of risk-weighted assets, whichever is higher, according to a fact sheet released by the FDIC.  Banks will be discouraged from holding the debt of other lenders to reduce contagion risk, the regulator said.  The requirements will create “moderately higher funding costs” for regional banks, the agencies acknowledged.  That could add to the industry's earnings pressure after all 3 major ratings agencies have downgraded the credit ratings of some lenders this year.  Still, the industry will have 3 years to conform to the new rule once enacted & many banks already hold acceptable forms of debt, according to the regulators.  They estimated that regional banks already have roughly 75% of the debt they will ultimately need to hold.  The KBW Regional Banking Index, which has suffered deep losses this year, rose less than 1% today.

Regional banks face hit from new debt level requirements

A former White House economist said he thinks the Federal Reserve will hike interest rates again amid rising inflation numbers & energy prices.  “The hiking is coming again,” Kevin Hassett, former chairman of the Council of Economic Advisers under then-Pres Trump, said.  “The inflation numbers are going to surprise on the upside because gas prices have gone up so much and ... we’re looking probably for a top-line (consumer price index) of 0.8 or so,” he added.  Hassett was referencing headline inflation, a measure of the total inflation within the economy including commodities like food & energy.  The CPI rose 0.2% for the month in Jul & 3.2% compared to the year prior.  Though the annual rate of headline inflation came in below expectations, it marked an increase from 3% in Jun, according to the Bureau of Labor Statistics.  Fed Chair Jerome Powell warned last week that interest rates could be raised again to reduce inflation back to its 2% goal.  The Fed's Federal Open Market Committee has raised interest rates 11 times since Mar 2022.  “We’re going to see kind of a sawtooth inflation cycle,” Hassett said.  “It’s going to be kind of like the Covid waves where it feels like Covid’s under control and then there’s a new variety.”

Former White House economic advisor says more Fed hiking is coming

Gold futures marked their highest settlement in about 3 weeks.  Prices got a boost from a softer $ & lower Treasury yields on the back of the JOLTs data.  The Labor Dept reported that US job openings fell in Jul to a 28-month low of 8.8.  Dec gold rose $18 (0.9%) to settle at $1965 an ounce, the highest finish for a most-active contract since Aug 7.

Gold futures settle at a 3-week high

US oil futures gained, settling at their highest in more than a week, as traders continued to monitor Hurricane Idalia's path & its potential impact on energy operations in the Gulf of Mexico.  West Texas Intermediate crude for Oct climbed $1.06 (1.3%) to settle at $81.16 a barrel, the highest front-month finish since Aug 18.

U.S. oil prices post highest finish in more than a week

Stock buyers were encouraged by the JOLTS report on job openings.  Tomorrow brings the first estimate for Q3 GDP & that is expected to be a strong number.  With the rally this week, Dow has cut its loss in Aug to 700+ (still a strong number).   

Dow Jones Industrials 

Markets climb after job openings fall to lowest in over a year

Dow rose 96, advancers over declines about 3-1 & NAZ gained 183.  The MLP index was even at 238 & the REIT index added 1+ to the 365s.  Junk bond funds fluctuated & Treasuries were purchased, lowering yields.  Oil was chump change higher, still above 80, & gold went up 15 to 1981.

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US job openings tumbled in Jul to the lowest level in more than 2 years, the latest evidence that the Federal Reserve's interest-rate hike campaign is continuing to cool the once red-hot labor market.  The Labor Dept said there were 8.8M job openings in Jul, a decline from the 9.1M openings reported the previous month.  The forecast expected a reading of 9.46M.  It marked the lowest level for job openings since Mar 2021.  Still, job openings remain historically high.  Before the COVID-19 pandemic began in early 2020, the highest on record was 7.6M.  There are roughly 1. 5 jobs per unemployed American.

Job openings drop more than expected in July to 2-year low

Home prices rose for the 5th consecutive month in Jun even as buyers continued to confront steep mortgage rates.  Prices increased 0.9% nationally in the period from May to Jun on a non-seasonally adjusted basis, the S&P CoreLogic Case-Shiller index showed.  On an annual basis, prices are down just 0.02% from their peak in Jun 2022.  "June is the fifth consecutive month in which home prices have increased across the U.S," said Craig Lazzara, managing director at S&P DJI.  "We recognize that the market’s gains could be truncated by increases in mortgage rates or by general economic weakness, but the breadth and strength of this month’s report are consistent with an optimistic view of future results."  The 10-city composite, which encompasses Los Angeles, Miami & New York, fell 0.5% annually, compared with a 1.1% decline in May.  The 20-city composite, which also tracks housing prices in Dallas & Seattle, fell 1.2% in Jun, which also marks an improvement from the 1.7% drop recorded the previous month.  "Regional differences continue to be striking," Lazarra said.  "The Midwest continues as the nation’s strongest region, followed this month by the Northeast. The West remains the weakest region."  "High mortgage rates are still no match for very low inventory, making competition for what is on the market higher than it would be otherwise given the affordability constraints, and thus prices continue to inch up," said Nicole Bachaud, Zillow senior economist. "Differences continue to be striking," Lazarra said.  "The Midwest continues as the nation’s strongest region, followed this month by the Northeast. The West remains the weakest region."

Home prices rise for fifth straight month as mortgage rates soar

Treasury yields declined as investors digested the latest job openings report & looked ahead to inflation data later in the week.  The yield on the 10-year Treasury fell 6 basis points to 4.151% & the 2-year Treasury yield was last trading at 4.95% after falling by 9.8 basis points.  Yields & prices move in opposite directions & one basis point is equal to 0.01%.  The personal consumption expenditures price index, which is the Federal Reserve's favored inflation gauge, is expected to be published Thurs.  Fed Chair Jerome Powell suggested last week that further interest rate hikes could be on the horizon.  Speaking at the central bank's annual Jackson Hole symposium, Powell said that while inflation has fallen, it remains too high.  “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” Powell added.

Treasury yields fall as investors digest job openings, look ahead to inflation data 

While the jobs opening data sounds good, it remains in high territory.  Tomorrow the first estimate for GDP growth Q3 will be released & the Fed is tracking at a growth rate of 5.9%.

Dow Jones Industrials