The month of June got off to a strong start with the Dow, Nasdaq, and S&P 500 all closing at new record highs. It wasn't lost on market participants either that Thursday's move to new highs was spearheaded by a lot of the groups that have been laggards this year, financials and transport stocks being chief among them.
The move on Wall Street set a good tone for foreign markets, most of which have traded higher today. Japan's Nikkei jumped 1.6% and Germany's DAX Index is also on the move with a 1.2% gain of its own.
Things were a little more subdued for the S&P futures ahead of the Employment Situation Report for May, yet a bullish bias was evident. The S&P futures were up five points in front of the aforementioned report and they are now up just one point as the May employment report was surprisingly weak.
The key takeaway from the employment report is that wage inflation continues to be dormant despite increased hiring activity. That understanding will temper concerns about the Fed having to walk an aggressive rate-hike path.
The Treasury market has responded accordingly to that consideration. Yields have fallen across the curve in another flattener trade that will likely make yesterday's leadership from the financial sector a one-hit wonder if that trade persists. The yield on the 10-yr note has fallen four basis points to 2.17% while the yield on the 2-yr note has dropped two basis points to 1.28%, narrowing the spread between the tow to just 89basis points.
The notable headlines from the Employment Situation Report are as follows:
- May nonfarm payrolls increased by 138,000 (Briefing.com consensus 185,000). Over the past three months, job gains have averaged 121,000 per month.
- April nonfarm payrolls revised to 174,000 from 211,000
- March nonfarm payrolls revised to 50,000 from 79,000
- May private sector payrolls increased by 147,000 (Briefing.com consensus 194,000)
- April private sector payrolls revised to 173,000 from 194,000
- March private sector payrolls revised to 59,000 from 77,000
- May unemployment rate was 4.3% (Briefing.com consensus 4.4%) versus 4.4% in April
- Persons unemployed for 27 weeks or more accounted for 24.0% of the unemployed versus 22.6% in April
- The U6 unemployment rate, which accounts for both unemployed and underemployed workers, decreased to 8.4% from 8.6% in April
- May average hourly earnings increased 0.2% (Briefing.com consensus +0.3%) after increasing a downwardly revised 0.2% (from 0.3%) in April
- Over the last 12 months, average hourly earnings have risen 2.5%, unchanged from the 12-month period ending in April
- The average workweek in May was 34.4 hours (Briefing.com consensus 34.4), versus 34.4 hours in April
- May manufacturing workweek unchanged at 40.7 hours
- Factory overtime increased 0.1 hour to 3.3 hours
- The labor force participation rate fell to 62.7% in May from 62.9% in April
In other economic news, the U.S. trade deficit widened to $47.6 billion in April (Briefing.com consensus -$44.3 billion) from a downwardly revised $45.3 billion (from -$43.7 billion) in March.
The widening deficit was the result of exports being $0.5 billion less than March exports and imports being $1.9 billion more than March imports.
The key takeaway from the report is that it will create a drag on second quarter GDP growth since the real trade deficit for April was higher than the first quarter average.
Oil prices ($47.36, -$1.00, -2.1%), meanwhile, are faltering on concerns about stepped-up production that have been ignited by President Trump's decision to withdraw the U.S. from the Paris Climate Accord and carryover angst related to the potential impact of Libya and U.S. shale producers increasing their output.
In brief, then, today's key data tends to point in the direction of a U.S. economy that is growing at a modest rate without any significant wage inflation. The silver lining for some is that such a dynamic will likely leave central bankers here, and abroad, in a more patient mindset with respect to policy shifts.
It is the so-called Goldilocks perspective that is becoming a tired story.