Today June’s employment report is released. The report needs to show a rebound in job creation, higher wage growth and an increase in the labor participation rate (LPR). In other words the report has to be the inverse of May’s dismal report that universally changed the monetary timetable.
Ironically however, if the report is too strong, it would add even more confusion to the markets and policy making, which are already coping with “unusual uncertainty.” A strong report may cause the bond market to trade off and may put pressure on equities for all know the relationship between monetary policy and equity prices, a major reason why the averages have retraced the vast majority of their Brexit plunge.
The question at hand is May’s report a “one off” event as recent data points are perhaps suggesting? I think yes and the potential short term volatility caused by a stronger than expected report is a small price to pay for a more solid footing of the US economy.
Analysts are expecting a 180k and 170k increase in non-farm and private sector payrolls, a 4.8% unemployment rate, a 0.2% increase in average hours, 34.4 hour work week and a 62.6% LPR.
Commenting upon yesterday’s market action, equities reversed Wednesday’s gains as oil fell on renewed concerns of an oversupply. Inventories fell less than expected. Treasuries slipped from record high prices.
Last night the foreign markets were mixed. London was down 0.05%, Paris up 0.87% and Frankfurt up 1.25%. China was down 0.19%, Japan down 1.11% and Hang Sang down 0.69%.
The Dow should open nominally higher but this could change radically given the significance of the 8:30 data. The 10-year is unchanged at 1.39% yield.