Good morning contrarians!
Stocks managed to hold on to modest gains yesterday, with only the Russell 2000 flashing red, down 0.8% on the day. The JOLTS report came in hotter than expected, with quits and layoffs little changed from the month before, but the market was mostly blah over that. It was the third straight day of gains for the S&P 500.
State of Play
Today as of 0620, the risk-on mood looks set to continue:
Stocks are a bit higher. Major U.S. indexes are pointing to gains of about 0.2%;
Commodities are rebounding a bit, with WTI crude oil up about 1% to move past $99/barrel and copper up 3.5%;
Cryptos are moving higher, with bitcoin up almost 2% to trade around $20,500;
Bonds are selling off, with the yield on the 2-year up 7 basis points to 3.03% while the 10-year is up 6bps to 2.97% (yields move inversely to prices). The yield curve is still inverted however.
Employment Data
Initial jobless claims are out at 0830. The expectation here is for 230,000 new claims, in line with the 231,000 seen last week. This number has slowly started creeping upward since it bottomed in April. Our guest this week, Marc Chandler, said that an increase of 50% from the lows of initial jobless claims means there is a recession.
A quick back-of-the-envelope calculation tells us that 249,000 is the level of initial jobless claims that qualifies as a 50% increase from the lows, which was 166,000. Something to look for — maybe not this week, but probably soon if the trend holds.
Other Economic Stuff
The U.S. trade balance prints at 0830, same time as the initial jobless claims. This is an important gauge of global economic strength. The U.S. is the main importer so a healthy trade deficit is considered a good thing here. Economists expect the deficit to have narrowed a bit, to $84.9 billion from $87.1 billion. This figure actually rebounded last month after a few consecutive months of decreases. But it still doesn’t look anywhere near recessionary levels.
We also have a couple of Fed speakers: St. Louis Fed President James Bullard at 1300 in Little Rock, Ark., and Fed Governor Christopher Waller in a fireside chat at the same time. Not sure if either speech will be streamed but remarks will surely be published immediately afterward.
Earnings
Levi Strauss ( LEVI 0.00%↑ ) and WD-40 ( WDFC 0.00%↑ ) report after the close at 1600.
The Bottom Line©
The question is if we will see more significant signs of labor market stress. So far we just most numbers slowly trending toward increased unemployment. It makes sense that this movement will be slow. But it is one thing that will improve inflation: If fewer Americans have jobs there will be less spending from U.S. consumers, inventories will build up, and prices will have to drop.
The Fed needs this to happen before they can stop raising rates. In the meantime, higher rates will continue to cut into economic growth and risk-taking. This is why the market is waiting and hoping for any indication that the Fed is due to reverse course. And that is why any signs of unemployment will likely be greeted as bullish indicators by investors.
How bullish remains an open question. But that’s another matter for another day. For now, let’s see how these employment reports shake out.
More Clues From a Resilient Labor Market