Hopes of a 50 bps rate cut were dashed Friday as the June payroll numbers showed continued job growth. The US economy added 224k nonfarm jobs in June. Prior to the release, the FedWatch tool was pricing in a 32% chance of a 50bps cut in July. After the payroll report, the 50 bps cut probability had fallen to just 5.5%. Future markets shifted forecasts to a 95% probability of a 25 bps cut in July.
While the Jobs report was certainly a positive for the economy there was other, less positive data out also; The U.S. Trade deficit climbed to $55.5 billion in May, up $4.3 billion. ISM Non-Manufacturing (services) registered 55.1 percent, which is 1.8% lower than the May reading. Manufacturing ISM decreased 0.4% to 51.7% from May’s reading of 52.1%. The New Orders Index was down 2.7% from May. U.S. construction spending declined by 0.8% in May, year/y it is down 2.3%.
There was also weak economic data from around the globe. China’s Manufacturing PMI remained in contractionary territory in June, Japan’s Manufacturing PMI decreased to 49.3 from 49.5, the Manufacturing PMI for the eurozone slipped to 47.6 from 47.8, South Korea reported that its exports decreased 13.5% yr/yr in June, and Germany’s Factory Orders fell 2.2% m/m in May.
This data has boosted expectations for more easing from global central banks, and those expectations were heightened after IMF Managing Director Christine Lagarde was nominated to take over for Mario Draghi at the European Central Bank. Ms. Lagarde is expected to be very dovish.
Last week’s meeting of President Trump and Chinese President XI did not yield concrete steps toward reaching a trade deal, but there was also no escalation of the dispute. Instead, President Trump agreed to relax restrictions on sales of components to Huawei and agreed to not impose additional tariffs on imports from China at this time.
The Baker Hughes rig count was flat this week. There are 963 oil and gas rigs operating in the US – down 89 over last year.
Brent Crude Oil lost 0.79% this week closing at $64.23/bbl
WTI Crude Oil lost 1.64% this week to close at $57.51/bbl
Heating Oil lost 1.77% this week closing at $1.90/gallon
Natural Gas gained 4.77% this week closing at $2.42 per million BTUs
Unleaded Gas gained 1.73% this week closing at $1.93/gallon
Metals Complex
Gold lost 0.96% this week closing at $1400.10/oz
Silver lost 2.22% on the week closing at $15.00/oz
Palladium gained 1.73% this week closing at $1564.20/oz
Platinum lost 3.63% this week closing at $805.20/oz
Copper lost 1.11% this week closing at $2.68/lb
Employment Picture
June Jobs Report–BLS Summary– Released 7/5 – The US Economyadded 224k nonfarm jobs in June (higher than expected) and the Unemployment rate edged up by 0.1% to 3.7%. The May report was revised down 3k. Average hourly earnings increased by 6 cents. Hiring highlights include Education and Health Services +61k, Professional and Business Services +51k, Transportation and Warehousing +24k.
Average hourly earnings increased by 6 cents/ 0.22% in June, y/y hourly earnings are up 3.1%.
U3 unemployment edged upward slightly by 0.1% to 3.7%. U6 unemployment rate increased 0.1% to 7.2%.
The labor force participation rate was little changed in June at 62.9% (Unchanged year/y).
Average workweek was unchanged at 34.4 hours.
Weekly Unemployment Claims – Released Thursday 7/4– In the week ending June 29th, initial claims were 221,000, a decrease of 8,000 from the previous week’s revised level. The 4-week moving average was 222,250, an increase of 500 from the previous week’s revised average.
Job Openings & Labor Turnover Survey JOLTS – Released Tuesday 6/10 – The U.S. Bureau of Labor Statistics reported the number of job openings was little changed at 7.4 million on the last business day of April. Over the month, hires edged up to 5.9million and separations were little changed at 5.6 million. Within separations, the quits rate remained unchanged at 2.3% at a level of 3.4 million. The layoffs and discharges rates were little changed at 1.2%.
Employment Cost Index – Released 4/30/19 – Compensation costs for civilian workers increased 0.7% for the 3-month period ending in March 2019. The 12 month period ending in March 2019 saw compensation costs increase by 2.8% versus 2.7% in March 2018. Wages and salaries were up 2.9% for the 12-month period ending March 2019, versus 2.7% for the 12-month period ending March 2018. Benefit costs increased 2.6% for the 12-month period ending March 2019. For private industry workers, compensation costs increased 2.8% year-over-year, versus 2.8% for the 12 months ending March 2018. Wages and salaries increased 3.0% year-over-year, versus 2.9% for the 12 months ending March 2018. Benefit costs increased 2.4%, versus 2.5% for the 12 months ending March 2018. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
U.S. Trade Balance–Released 7/3 –The U.S. Trade deficit was $55.5 billion in May, up $4.3 billion from $51.2 billion in April. May exports were $210.6 billion, $4.2 billion more than April exports. May imports were $266.2 billion, $8.5 billion more than April imports. The goods and services deficit has increased $15.7 billion or 6.4% year to date. Year to date exports and imports increased $5.1 billion or 0.5% and $20.8 billion or 1.6% respectively.
PMI Non-Manufacturing Index (ISM Services)–Released 7/3 – Economic activity in the non-manufacturing sector grew in June for the 113th consecutive month. ISM Non-Manufacturing registered 55.1 percent, which is 1.8 percentage points lower than the May reading of 56.9 percent. This represents continued growth in the non-manufacturing sector, at a slightly slower rate.
PMI Manufacturing ISM Index – Released 7/1 – June PMI decreased 0.4% to 51.7% from May’s reading of 52.1%. The New Orders Index was down 2.7% from May’s reading of 52.7% to 50.0% for June. The Production Index registered 54.1% up 2.8%.
U.S. Construction Spending– Released 7/1 – Construction spending declined by 0.8% in May measuring at a seasonally adjusted annual rate of $1,293.9 billion. The May figure is 2.3% below the May 2018 estimate. Private construction spending was 0.7% below the revised April estimate at $953.2 billion. Public construction spending was 0.9% below the revised April estimate at $340.6 billion.
Recent Economic Data
Links take you to the data source
Chicago PMI–Released 6/28–Chicago PMI decreased 4.5 points in June falling to 49.7, down from 54.2 in May. This decline shows the index entering contraction territory and it marks the first time the index has dipped below 50 since January 2017. This decline brings with it reductions in business confidence, weak demand, and slowed production levels. Also, order backlogs are now in contraction for two consecutive months. Factory gate prices have increased with the pressure of trade tariffs. 80% of firms state they feel a negative impact from the tariffs increasing prices and decreasing orders. At this point, it is speculative whether the diminished business confidence is temporary due to the tariffs or signs of more structural issues.
Personal Income– Released 6/28 – Personal Income increased 0.5% in May after seeing a 0.5% increase in April according to the BEA. The majority of the increase in May was due to increases in personal interest income, wages and salaries, and government social benefits to persons. Real PCE (the Feds preferred inflation gauge) increased 0.2% in May. Real disposable personal income increased 0.3% in May.
Third Estimate of 1st Quarter GDP – Released 6/27 – According to the third estimate released by the Bureau of Economic Analysis, Real Gross Domestic Product (Real GDP) increased at an annual rate of 3.1% in the first quarter of 2019. The third estimate is based on more complete source data than was available for the second estimate. The second estimate, estimated real GDP, increased at 3.1% in the 1st quarter. The first-quarter increase in real GDP observed positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, state and local gov’t spending, and nonresidential fixed income. Also, imports decreased in the first quarter further increasing gains to real GDP. Positive contributions were partly offset by a decrease in residential fixed investment.
Durable Goods– Released 6/26 – New orders for manufactured durable goods decreased $3.3 billion or 1.3% to $243.4 billion in May.The decrease in May follows a 2.8% decrease in April. Three of the last four months have seen declines. Transportation equipment declined 4.6%, driving the decrease by $3.9 billion to $80.0 billion.
Consumer Confidence– Released 6/25 – The Consumer confidence index declined in June following an increase in May. The Index now shows a reading of 121.5 down from 131.3 in May. Consumer confidence has reached its lowest level since September 2017 with the decline in consumer confidence in June; following two consecutive months of improvement. The decline in consumer confidence levels suggests consumers were shaken by the escalation in trade and tariff tensions and that they have some uncertainty in the short-term. Further escalations may increase uncertainty among consumers and further increase volatility in the index.
New Residential Sales– Released 6/25 – Sales of new single-family homes declined 7.8% to 626k, seasonally adjusted, in May. The median sales price of new homes sold in May was $308k with an average sales price of $377.2k. At the end of May, the seasonally adjusted estimate of new homes for sale was 333k. This represents a supply of 6.4 months at the current sales rate.
Existing Home Sales– Released 6/21 – Existing home sales rebounded in May after two months of decline. Sales increased 2.5% to a seasonally adjusted rate of 5.34 million. Sales are currently down 1.1% from one year ago. Housing inventory increased to 4.3 months of inventory and the total housing inventory increased to 1.92 million. The median sales price for all types of homes was $277,700, up 4.8% year/y.
Housing Starts– Released 6/18 – New home starts in May were at a seasonally adjusted rate of 1.213 million; down 9.5% below April and 2.8% below last May’s rate. Building Permits were at a seasonally adjusted rate of 1.294 million, up 0.3% compared to April but down 0.5% over last year.
Industrial Production and Capacity Utilization – Released 6/14 – Industrial production increased 0.4% in May following an upwardly revised 0.4% decrease (from -0.5%) in April. Total capacity utilization increased to 78.1% from an unrevised 77.9% in April.
Retail Sales – Released 6/14 – U.S. retail sales for May 2019, were $519 billion, an increase of 0.5% from the previous month. Retail sales are up 3.6% year to year.
Consumer Price Index –Released 6/12 – The Consumer Price Index increased 0.1% in May. Core CPI, which excludes food and energy increased 0.1%. The monthly changes left total CPI up 1.8% year-over-year and core CPI up 2.0%.
Producer Price Index– Released 6/11 – The Producer Price Index for final demand increased 0.1% in May. Core PPI was up 0.2%. Year over year the index for final demand rose 2.3%.
US Light Vehicle Sales – Released 6/7 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 17.9 million units in May versus a SAAR of 16.9 million units in April.
Consumer Credit–Released 6/7 – Consumer credit increased at a seasonally adjusted annual rate of 5.25% in April. Revolving and nonrevolving credit increased 8.0% and 4.25% respectively. Total Outstanding consumer credit is currently at $4.070 trillion.
Next week we get data on Consumer Credit, U.S. Light Vehicle Sales, the Producer Price Index, The Consumer Price Index, and JOLTS.
Hopes of a 50 bps rate cut were dashed Friday as the June payroll numbers showed continued job growth. The US economy added 224k nonfarm jobs in June. Prior to the release, the FedWatch tool was pricing in a 32% chance of a 50bps cut in July. After the payroll report, the 50 bps cut probability had fallen to just 5.5%. Future markets shifted forecasts to a 95% probability of a 25 bps cut in July.
While the Jobs report was certainly a positive for the economy there was other, less positive data out also; The U.S. Trade deficit climbed to $55.5 billion in May, up $4.3 billion. ISM Non-Manufacturing (services) registered 55.1 percent, which is 1.8% lower than the May reading. Manufacturing ISM decreased 0.4% to 51.7% from May’s reading of 52.1%. The New Orders Index was down 2.7% from May. U.S. construction spending declined by 0.8% in May, year/y it is down 2.3%.
There was also weak economic data from around the globe. China’s Manufacturing PMI remained in contractionary territory in June, Japan’s Manufacturing PMI decreased to 49.3 from 49.5, the Manufacturing PMI for the eurozone slipped to 47.6 from 47.8, South Korea reported that its exports decreased 13.5% yr/yr in June, and Germany’s Factory Orders fell 2.2% m/m in May.
This data has boosted expectations for more easing from global central banks, and those expectations were heightened after IMF Managing Director Christine Lagarde was nominated to take over for Mario Draghi at the European Central Bank. Ms. Lagarde is expected to be very dovish.
Last week’s meeting of President Trump and Chinese President XI did not yield concrete steps toward reaching a trade deal, but there was also no escalation of the dispute. Instead, President Trump agreed to relax restrictions on sales of components to Huawei and agreed to not impose additional tariffs on imports from China at this time.
Table of Contents
Fixed Income
FOMC March Statement Federal Reserve Dot Plots Dec 18 US Debt Measurement March Meeting Minutes US Corporate Debt Tops $6 Trillion Treasury.gov yields
FOMC Policy Normalization Statement
Global Bond Yields
Daily US Treasury Yields
Foreign Exchange Market
Energy Complex
The Baker Hughes rig count was flat this week. There are 963 oil and gas rigs operating in the US – down 89 over last year.
Metals Complex
Employment Picture
June Jobs Report – BLS Summary – Released 7/5 – The US Economy added 224k nonfarm jobs in June (higher than expected) and the Unemployment rate edged up by 0.1% to 3.7%. The May report was revised down 3k. Average hourly earnings increased by 6 cents. Hiring highlights include Education and Health Services +61k, Professional and Business Services +51k, Transportation and Warehousing +24k.
Weekly Unemployment Claims – Released Thursday 7/4 – In the week ending June 29th, initial claims were 221,000, a decrease of 8,000 from the previous week’s revised level. The 4-week moving average was 222,250, an increase of 500 from the previous week’s revised average.
Job Openings & Labor Turnover Survey JOLTS – Released Tuesday 6/10 – The U.S. Bureau of Labor Statistics reported the number of job openings was little changed at 7.4 million on the last business day of April. Over the month, hires edged up to 5.9million and separations were little changed at 5.6 million. Within separations, the quits rate remained unchanged at 2.3% at a level of 3.4 million. The layoffs and discharges rates were little changed at 1.2%.
Employment Cost Index – Released 4/30/19 – Compensation costs for civilian workers increased 0.7% for the 3-month period ending in March 2019. The 12 month period ending in March 2019 saw compensation costs increase by 2.8% versus 2.7% in March 2018. Wages and salaries were up 2.9% for the 12-month period ending March 2019, versus 2.7% for the 12-month period ending March 2018. Benefit costs increased 2.6% for the 12-month period ending March 2019. For private industry workers, compensation costs increased 2.8% year-over-year, versus 2.8% for the 12 months ending March 2018. Wages and salaries increased 3.0% year-over-year, versus 2.9% for the 12 months ending March 2018. Benefit costs increased 2.4%, versus 2.5% for the 12 months ending March 2018. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
U.S. Trade Balance – Released 7/3 – The U.S. Trade deficit was $55.5 billion in May, up $4.3 billion from $51.2 billion in April. May exports were $210.6 billion, $4.2 billion more than April exports. May imports were $266.2 billion, $8.5 billion more than April imports. The goods and services deficit has increased $15.7 billion or 6.4% year to date. Year to date exports and imports increased $5.1 billion or 0.5% and $20.8 billion or 1.6% respectively.
PMI Non-Manufacturing Index (ISM Services) – Released 7/3 – Economic activity in the non-manufacturing sector grew in June for the 113th consecutive month. ISM Non-Manufacturing registered 55.1 percent, which is 1.8 percentage points lower than the May reading of 56.9 percent. This represents continued growth in the non-manufacturing sector, at a slightly slower rate.
PMI Manufacturing ISM Index – Released 7/1 – June PMI decreased 0.4% to 51.7% from May’s reading of 52.1%. The New Orders Index was down 2.7% from May’s reading of 52.7% to 50.0% for June. The Production Index registered 54.1% up 2.8%.
U.S. Construction Spending – Released 7/1 – Construction spending declined by 0.8% in May measuring at a seasonally adjusted annual rate of $1,293.9 billion. The May figure is 2.3% below the May 2018 estimate. Private construction spending was 0.7% below the revised April estimate at $953.2 billion. Public construction spending was 0.9% below the revised April estimate at $340.6 billion.
Recent Economic Data
Links take you to the data source
Chicago PMI – Released 6/28 – Chicago PMI decreased 4.5 points in June falling to 49.7, down from 54.2 in May. This decline shows the index entering contraction territory and it marks the first time the index has dipped below 50 since January 2017. This decline brings with it reductions in business confidence, weak demand, and slowed production levels. Also, order backlogs are now in contraction for two consecutive months. Factory gate prices have increased with the pressure of trade tariffs. 80% of firms state they feel a negative impact from the tariffs increasing prices and decreasing orders. At this point, it is speculative whether the diminished business confidence is temporary due to the tariffs or signs of more structural issues.
Personal Income – Released 6/28 – Personal Income increased 0.5% in May after seeing a 0.5% increase in April according to the BEA. The majority of the increase in May was due to increases in personal interest income, wages and salaries, and government social benefits to persons. Real PCE (the Feds preferred inflation gauge) increased 0.2% in May. Real disposable personal income increased 0.3% in May.
Third Estimate of 1st Quarter GDP – Released 6/27 – According to the third estimate released by the Bureau of Economic Analysis, Real Gross Domestic Product (Real GDP) increased at an annual rate of 3.1% in the first quarter of 2019. The third estimate is based on more complete source data than was available for the second estimate. The second estimate, estimated real GDP, increased at 3.1% in the 1st quarter. The first-quarter increase in real GDP observed positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, state and local gov’t spending, and nonresidential fixed income. Also, imports decreased in the first quarter further increasing gains to real GDP. Positive contributions were partly offset by a decrease in residential fixed investment.
Durable Goods – Released 6/26 – New orders for manufactured durable goods decreased $3.3 billion or 1.3% to $243.4 billion in May. The decrease in May follows a 2.8% decrease in April. Three of the last four months have seen declines. Transportation equipment declined 4.6%, driving the decrease by $3.9 billion to $80.0 billion.
Consumer Confidence – Released 6/25 – The Consumer confidence index declined in June following an increase in May. The Index now shows a reading of 121.5 down from 131.3 in May. Consumer confidence has reached its lowest level since September 2017 with the decline in consumer confidence in June; following two consecutive months of improvement. The decline in consumer confidence levels suggests consumers were shaken by the escalation in trade and tariff tensions and that they have some uncertainty in the short-term. Further escalations may increase uncertainty among consumers and further increase volatility in the index.
New Residential Sales – Released 6/25 – Sales of new single-family homes declined 7.8% to 626k, seasonally adjusted, in May. The median sales price of new homes sold in May was $308k with an average sales price of $377.2k. At the end of May, the seasonally adjusted estimate of new homes for sale was 333k. This represents a supply of 6.4 months at the current sales rate.
Existing Home Sales – Released 6/21 – Existing home sales rebounded in May after two months of decline. Sales increased 2.5% to a seasonally adjusted rate of 5.34 million. Sales are currently down 1.1% from one year ago. Housing inventory increased to 4.3 months of inventory and the total housing inventory increased to 1.92 million. The median sales price for all types of homes was $277,700, up 4.8% year/y.
Housing Starts – Released 6/18 – New home starts in May were at a seasonally adjusted rate of 1.213 million; down 9.5% below April and 2.8% below last May’s rate. Building Permits were at a seasonally adjusted rate of 1.294 million, up 0.3% compared to April but down 0.5% over last year.
Industrial Production and Capacity Utilization – Released 6/14 – Industrial production increased 0.4% in May following an upwardly revised 0.4% decrease (from -0.5%) in April. Total capacity utilization increased to 78.1% from an unrevised 77.9% in April.
Retail Sales – Released 6/14 – U.S. retail sales for May 2019, were $519 billion, an increase of 0.5% from the previous month. Retail sales are up 3.6% year to year.
Consumer Price Index – Released 6/12 – The Consumer Price Index increased 0.1% in May. Core CPI, which excludes food and energy increased 0.1%. The monthly changes left total CPI up 1.8% year-over-year and core CPI up 2.0%.
Producer Price Index – Released 6/11 – The Producer Price Index for final demand increased 0.1% in May. Core PPI was up 0.2%. Year over year the index for final demand rose 2.3%.
US Light Vehicle Sales – Released 6/7 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 17.9 million units in May versus a SAAR of 16.9 million units in April.
Consumer Credit – Released 6/7 – Consumer credit increased at a seasonally adjusted annual rate of 5.25% in April. Revolving and nonrevolving credit increased 8.0% and 4.25% respectively. Total Outstanding consumer credit is currently at $4.070 trillion.
Next week we get data on Consumer Credit, U.S. Light Vehicle Sales, the Producer Price Index, The Consumer Price Index, and JOLTS.
Data Sources:
Bureau of Economic Analysis (BEA)
Congressional Budget Office (CBO)
U.S. Bureau of Labor Statistics (BLS)
Federal Reserve Economic Data (FRED Charts)
CME Fed Watch
U.S. Treasury – Yields
U.S. Census Bureau
Institute for Supply Management (ISM)
Weekly DOL Employment Data
BLS Monthly Jobs Report
JOLTS
US Energy Admin (EIA)
BLS Consumer Price Index CPI
BLS Producer Price Index PPI
Atlanta Fed GDPNOW
NY Fed Nowcast GDP
US Census Bureau Housing Starts
Consumer Credit
USCB Retail Sales
Construction Spending
Federal Reserve Dot Plots
NY Empire Index
Philadelphia Federal Reserve
P/E Ratio Data -Yardeni Research
Technical Analysis Info:
StockCharts.com – Financial Charts
Exponential vs Simple moving average
Other Links:
1973 Arab Oil Embargo
Hunt Brothers Silver
Long-Term Capital bailout
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