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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.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.