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The June Employment Situation Report was released at 8:30 a.m. ET. Prior to that, there wasn't much conviction in the equity futures trade as market participants (at least the ones who opted to wake up, show up, log in, etc., after the July 4th holiday) took a wait-and-see position.
There was plenty of conviction in the UK election yesterday, however. The Labour Party trounced the Conservative Party, triggering the resignation of Rishi Sunak as prime minister and leading to the appointment of Keir Starmer as the UK's new prime minister. France for its part will hold the second round of voting for its snap election this Sunday.
Market participants (even the ones still on vacation) will have that to think about over the weekend, as well as the condition of the labor market and President Biden's candidacy for president. Mr. Biden will be participating in an ABC News primetime interview tonight.
In brief, the June employment report did not convey a robust labor market in June. To be fair, it did not convey a weak labor market either. If anything, it conveyed a weakening labor market.
The nonfarm payrolls increase (206,000) looked good, but that strength gets watered down when taking into account that private sector payrolls, which exclude government hiring, were up just 136,000. Furthermore, there was a moderation in year-over-year average hourly earnings, and downward revisions to nonfarm payrolls for April and May combined translated to employment being 111,000 lower than previously reported.
The key takeaway from the report is that labor market conditions are softening, which will provide the Fed some cover to cut rates in September if it so chooses.
The fed funds futures market thinks the Fed will choose that course of action, too. According to the CME FedWatch Tool, there is a 75.2% probability of a 25-basis points rate cut at the September FOMC meeting versus 74.4% on July 3.
Notable headlines from the June Employment Situation Report:
- June nonfarm payrolls increased by 206,000 (Briefing.com consensus 185,000). The 3-month average for total nonfarm payrolls decreased to 177,000 from 212,000. May nonfarm payrolls revised to 218,000 from 272,000. April nonfarm payrolls revised to 108,000 from 165,000.
- June private sector payrolls increased by 136,000 (Briefing.com consensus 160,000). May private sector payrolls revised to 193,000 from 229,000. April private sector payrolls revised to 108,000 from 158,000.
- June unemployment rate was 4.1% (Briefing.com consensus 4.0%), versus 4.0% in May. Persons unemployed for 27 weeks or more accounted for 22.2% of the unemployed versus 20.7% in May. The U6 unemployment rate, which accounts for unemployed and underemployed workers, held steady at 7.4%.
- June average hourly earnings were up 0.3% (Briefing.com consensus 0.3%) versus 0.4% in May. Over the last 12 months, average hourly earnings have risen 3.9%, versus 4.1% for the 12 months ending in May.
- The average workweek in June was 34.3 hours (Briefing.com consensus 34.3), versus 34.3 hours in May. Manufacturing workweek was unchanged at 40.2 hours. Factory overtime remained at 3.0 hours.
- The labor force participation rate increased to 62.6% from 62.5%.
- The employment-population ratio held steady at 60.1%.
Currently, the S&P 500 futures are up three points and are trading roughly in-line with fair value, the Nasdaq 100 futures are up 14 points and are trading in-line with fair value, and the Dow Jones Industrial Average futures are up 29 points and are trading fractionally above fair value.
The initial response to the employment report was positive with participants believing it will pave the way to a rate cut; however, market participants will be deliberating whether it also paves the way possibly to earnings estimate cuts if it is a precursor to weaker spending activity.
The 2-yr note yield is down seven basis points to 4.65% and the 10-yr note yield is down five basis points to 4.31%.
