Jobs Data Blows Past Expectations, July Rate Cuts In Doubt, Geopolitics Still In Focus

The U.S. Non-Farm Payrolls Blows Past Expectations

The U.S. futures are flat in early trading despite a blowout number in the NFP report. According to the Bureau of Labor Statistics, non-farm payrolls increased by 224,000 in June. this is 60,000 ahead of expectations and is the fastest pace of job growth in five months. The unemployment rate was little changed at 3.7%, up 0.1%, and the labor force participation rate edged up a tenth as well. Revisions to the previous two months trimmed 11,000 from the YTD total job gains but did little to alter the positive vibe. Job gains were broad across the economy with notable gains in manufacturing and construction.

The most important figure, however, is the wage data. The NFP report shows average hourly wages increased by 0.20% MOM and 3.1% YOY. For market participants expecting a July interest rate cut, this is not good news. The data shows the U.S. economy is resilient and less affected by global trade tensions than previously thought. The next FOMC meeting is in three weeks, remarks from Jerome Powell in June had led the market to expect a cut may come as soon as this month.

The major U.S. indices were all slightly lower ahead of the NFP release. After the release, the indices made a quick dip to the morning low before rebounding to trade little changed from Wednesday’s close.

European Markets Edge Lower

The European markets were slightly lower ahead of the NFP release and moved lower again in the wake of the release. Investors had been counting on another round of FOMC stimulus in the form of an interest rate cut and those hopes are dashed. The NFP report shows U.S. economics are not slowing as much as feared and that wage inflation is still present. The DAX, FTSE, and CAC were all down about -0.35% before the release and then extended those losses to near -0.50% when the data was announced.

Basic resources led the decline with a loss of -1.8%. The telecom sector bucked the general downtrend with a gain near 0.6%. The industrials were also moving lower at midday, down -1.6% following a round of weak industrial data from Germany.

In geopolitical news, a force of British Royal Marines seized control of an Iranian tanker. The tanker was seized because it was circumventing sanctions in an effort to deliver crude oil to Syria. The move drew ire from Tehran although there is no word yet on any retaliation from the embattled nation.

Asian Markets Mostly Higher

Asian markets closed the Friday session mostly higher because of optimism for weak NFP data and a July FOMC rate cut. The Australian ASX led with a gain of 0.50% with most others closing with gains between 0.10% and 0.20%. The Korean Kospi posted the smallest advance as it was weighed down by results from Samsung. Samsung reports that 2Q profits fell more than 55% from the year-ago period. The Hong Kong Hang Seng is the only index to post a loss.