WOW! “UNUSUAL UNCERTAINITY” REIGNS

June’s labor report has added to the “unusual uncertainty” environment facing the markets.  The report was the inverse of May’s broad based unexpected weakness…unexpected broad based strength.

The economy added an impressive 287k non-farm payroll jobs in June, beating the 180k expected gain.  This was the largest monthly increase since October 2015 (295k).  May’s NFP was revised to 38,000 from 11,000.

Private sector jobs rose by a remarkable 265,000 in June following a revised 6,000 decline in May.

The unemployment rate did rise to 4.9% from May’s 4.7% level but this is the result of more people reentering the workforce.  The labor participation rate (LPR) rose to 62.7% from last month’s 62.6%.  The LPR had a sharp two month decline of 0.4%.

Wages did rise by only by 0.1% bringing the year on year increase to 2.6%.

In view this was the proverbial “goldilocks” report for equity investors.  The data was strong enough to underpin more comforting growth expectations but not too hot to change immediate monetary policy expectations.

Speaking of which, the odds of a September rate hike are again rising.  To remind all, a July rate hike was all but assured until May’s poor labor report and the Brexit vote.  A week ago, the market thought an increase will not occur until 2018.  Wow!  Talk about “unusual uncertainty” with some pontificating about a lack of confidence in the Federal Reserve.

But if there is a lack of confidence in the Fed, why are real bond yields negative by almost 100 basis points, a negative real yield that rose Friday as Treasuries continued their relentless climb higher in price?  Can I remotely suggest there is no confidence in government vs. the Federal Reserve?  Absolutely.

As noted equities rallied handsomely on Friday, an advance I believed was entirely algorithmic in nature.  All must remember, in today’s environment prices could fall as quickly as they had advanced.

What will happen this week?  It is the commencement of second quarter earnings season.  Expectations are low.  There is little on the economic calendar until later in the week with the release of the Beige Book, several inflation indices, retail sales, a confidence survey and manufacturing data.

Last night the foreign markets were up.  London was up 0.89%, Paris up 1.46% and Frankfurt up 1.61%.  China was down 0.56%, Japan up 3.98% and Hang Sang up 1.54%.

The Dow should open moderately higher on economic growth optimism.  The 10-year is off 9/32 to yield 1.39%.

 

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