From a macro standpoint, there is plenty to focus on this morning.
The U.S. proceeded with implementing tariffs on $34 billion worth of Chinese goods and China responded in kind with a comparable tariff shot on U.S. goods, as it said it would.
President Trump said tariffs on another $16 billion worth of Chinese goods could be coming in two weeks and that it's possible tariffs on more than $500 billion of Chinese goods could be levied over time if necessary. China stands ready to defend its trade turf, so there is a sense this morning that both sides are digging in to battle in the trenches.
This shouldn't come as any surprise since there was no indication before midnight that the imposition of the tariffs would be deferred or canceled. We make that point, because that understanding clearly didn't bother the market on Thursday.
To suggest it was weighing heavily on the futures market this morning was a headline overreach, but alas, that was a popular excuse for explaining why the S&P futures were down seven points.
The operative word is were. The S&P futures are currently flat, having reversed on the heels of an Employment Situation Report for June that was just how the market likes it: not too hot and not too cold.
The key takeaway is that the data in aggregate were strong enough to excite the masses about the economic expansion continuing, but not so strong as to ignite any mass hysteria about inflation taking off and the Federal Reserve needing to clamp down fast and hard to contain it.
The notable headlines from the Employment Situation Report are as follows:
- June nonfarm payrolls increased by 213,000 (Briefing.com consensus 195,000). Over the past three months, job gains have averaged 211,000 per month
- May nonfarm payrolls revised to 244,000 from 223,000
- April nonfarm payrolls revised to 175,000 from 159,000
- June private sector payrolls increased by 202,000 (Briefing.com consensus 192,000)
- May private sector payrolls revised to 239,000 from 218,000
- April private sector payrolls revised to 174,000 from 162,000
- June unemployment rate was 4.0% (Briefing.com consensus 3.8%) versus 3.8% in May
- Persons unemployed for 27 weeks or more accounted for 23.0% of the unemployed versus 19.4% in May
- The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.8%, versus 7.6% in May
- June average hourly earnings were up 0.2% (Briefing.com consensus +0.3%), after increasing 0.3% in May
- Over the last 12 months, average hourly earnings have risen 2.7%, versus 2.7% for the 12 months ending in May
- The average workweek in June was 34.5 hours (Briefing.com consensus 34.5) versus 34.5 hours in May
- June manufacturing workweek increased 0.1 hours to 40.9 hours
- Factory overtime increased 0.1 hours to 3.5 hours
- The labor force participation rate was 62.9% in June, versus 62.7% in May
There was also some good news on the trade front. The trade deficit narrowed to $43.1 billion in May (Briefing.com consensus -$43.6 billion) from $46.1 billion in April.
The narrowing was the result of exports increasing $4.1 billion more than April exports and imports increasing $1.1 billion more than April imports. The export increase was driven mainly by exports of civilian aircraft and soybeans while the uptick in imports was led by capital goods. Notably, the goods deficit with China increased $1.2 billion to $32.0 billion in May.
The key takeaway from the report is that net exports will be accounted for a positive component in Q2 GDP forecasts, as the second quarter average real trade deficit is 7.4% less than the first quarter average.
There is a corporate news item of note that will help boost the biotech space. Specifically, Biogen (BIIB) is up 13.8% in pre-market trading after announcing positive trial results for its Alzheimer's drug.
Overall, today's market is expected to open on a mixed and flattish note. That's better than what was seen in the overnight trade and it isn't bad coming off yesterday's rally effort. In effect, it's a start that will be neither too hot nor too cold.