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UNEMPLOYMENT DATA RELEASED AT 8:30

The ISM Manufacturing Index surprised on the upside.  The data was not as weak as forecasted and prices did not climb as much as expected.  The headline number did fall by the most in five months, however it was considerably stronger than expected almost matching last month’s data.  The “New Order Index” was also considerably higher than expected, eclipsing the prior month’s level by a significant margin.

The prices paid subcomponent was considerably lower than expected, also almost matching last month’s statistics.

Is this data an aberration to the current narrative that the economy is about to fall into the stagflation abyss?  Or does it not yet reflect the pending storm at the edge of the horizon?

Perhaps a combination of both.  The current environment is one that the economy has not yet experienced, lacking any type of realistic precedent.

The yield curve initially steepened moderately on the data as it perhaps reinforces the belief the Fed must lower interest rates sooner than expected while at the time this lowering of rates may increase inflationary expectations/pressures.

Later in the day, the yield curve flattened as the two-year Treasury or instrument most sensitive to monetary policy sold off as monetary policy assumptions again changed, reducing the number of expected rate reductions.

Equites advanced handsomely yesterday as both MSFT and META jumped on upbeat results.  There is also renewed optimism of some impending tariff deals.

What will happen today?

After the close both AAPL and AMZN posted results.  AMZN disappointed initially sending shares down about 6% .  AAPL also disappointed, causing about a 5% slide in shares.

Also the unemployment data is released at 8:30.  Analysts are expecting a 135k and 112k increase in nonfarm and private sector payrolls respectively, a 4.2% unemployment rate, a 03% increase average hourly earnings, a 34.2 hour work week and a 62.5% labor participation rate.

How will this data be interpreted?

Last night the foreign markets were up.  London was up 0.73%, Paris up 1.58%  and Frankfurt up1.67%.  China was down 0.23%,  Japan up 1.04% and Hang Seng up 1.74%.

Dow and NASADQ futures are up 0.5% and 0.25% on headlines that China is open to trade talks.   Both AAPL and AAPL have retraced about half of their post earnings decline on the headlines.  The 10-year is up 1/32 to yield 4.22%.

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Kent 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.