Market Commentary

Will June’s unemployment data
July 02, 2010

Will June’s unemployment data break the market’s slump?  In my view any positive catalyst could cause an oversold rally, a rally that could be perhaps amplified by algorithmic trading. 

All attention will be focused on the number of private payrolls that were created.  Consensus is 111,000 but the range is wide…between 22K and 200K.  Last month all were expecting a large increase but were disappointed by a paltry 41K increase.  As suggested by recent market action expectations are low.

All will focus upon hours worked as well as the number of temporary employees.  Both are precursors to later hiring. 

In my view there are two major headwinds facing increased job creation.  First is Washington. Second are productivity gains.  Productivity is surging around a 3% rate.  Rather simplistically the economy has to grow around 4% in order for jobs to rise by 1.0%.   If workers are 3% more productive and if the economy is expanding by 3%, new workers are not required.

I will readily admit this is crude analysis however I think you see my point.  At some point however productivity stops rising and new workers must be added.

Regarding Washington, as penned many times the true intent or direction of our country’s legislatures is unquantified.  Many organizations are fearful of unknown additional regulations or costs associated with adding new employees.

The data is released at 8:30.  Consensus is expecting a 9.8% headline rate, a 130K decline in nonfarm payrolls, a 110,000 rise in private payrolls, a 34.2 hour workweek and a 0.1% increase in hourly earnings.

Last night the foreign markets were up. London was up 0.83%, Paris up 0.41% and Frankfurt up 0.41%.  Japan was up 0.13%and Hang Sang down 1.11%.

The Dow should open normally higher but this could change radically given the importance of the 8:30 data.  The 10-year is off 1/32 to yield 2.95%.