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Today is an abbreviated session, but a lot is getting get jam-packed into it before the stock market closes at 1:00 p.m. ET for the extended holiday weekend.
The June employment report is the headliner, along with the news that House passed a procedural vote to advance the "One Big, Beautiful Bill" to a full House vote today. Speaker Johnson has declared that "we have the votes," so the bill looks destined to be on the president's desk for signing by July 4.
That news didn't elicit much response from the equity futures market, largely because it was expected. There might have been some allowance for the timing of the bill's passage being delayed, but not the bill itself. The primary catalyst for the gains in the equity futures market this morning is the employment report, which featured a decline in the unemployment rate to 4.1% from 4.2% and a relatively solid 147,000 increase in nonfarm payrolls.
That's not to say there weren't points of weakness in the report. There were. The key takeaway, though, is that it wasn't weak enough to convince the market that a rate cut at the July FOMC meeting is squarely on the table. On the contrary, that is looking more like a remote possibility, with the fed funds futures market pricing in only a 4.7% probability of a 25 basis-point cut at the meeting versus 23.8% a day ago, according to the CME FedWatch Tool.
The Treasury market is keying in on this reality with its initial reaction. The 2-yr note yield, at 3.76% just before the 8:30 a.m. ET release, is at 3.89% now, up 10 basis points, and the 10-yr note yield, at 4.26% just before the release, is at 4.34% now, up five basis points.
Currently, the S&P 500 futures are up 16 points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 77 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 75 points and are trading 0.2% above fair value. Why? Because there is a recognition that this employment report, which got supplemented by another encouraging initial jobless claims reading, will leave the U.S. economy on a growth track that is good for earnings prospects.
Notable headlines from the June Employment Situation Report:
- June nonfarm payrolls increased by 147,000 (Briefing.com consensus: 120,000). The 3-month average for total nonfarm payrolls increased to 150,000 from 141,000. May nonfarm payrolls revised to 144,000 from 139,000. April nonfarm payrolls revised to 158,000 from 147,000.
- June private sector payrolls increased by 74,000 (Briefing.com consensus: 123,000). May private sector payrolls revised to 137,000 from 140,000. April private sector payrolls revised to 133,000 from 146,000.
- June unemployment rate was 4.1% (Briefing.com consensus: 4.2%) versus 4.2% in May. Persons unemployed for 27 weeks or more accounted for 23.3% of the unemployed versus 20.4% in May. The U6 unemployment rate, which accounts for unemployed and underemployed workers, decreased to 7.7% from 7.8% in May.
- June average hourly earnings were up 0.2% (Briefing.com consensus: 0.3%) versus 0.4% in May. Over the last 12 months, average hourly earnings have risen 3.7% versus 3.8% for the 12 months ending in May.
- The average workweek in June was 34.2 hours (Briefing.com consensus: 34.3) versus 34.3 hours in May. Manufacturing workweek held at 40.1 hours. Factory overtime held at 2.9 hours.
- The labor force participation rate decreased to 62.3% from 62.4%.
- The employment-population ratio held at 59.7%.
The other data points were weekly initial and continuing jobless claims and the May trade deficit.
Initial jobless claims for the week ending June 28 decreased by 4,000 to 233,000 (Briefing.com consensus: 240,000), while continuing jobless claims for the week ending June 21 were unchanged at 1.964 million.
The key takeaway from the report is the same as before: businesses are not busily laying off workers, but it has become more challenging for workers who have been laid off to find a new job.
The trade deficit widened to $71.5 billion in May (Briefing.com consensus: -$70.5 billion) from an upwardly revised $60.3 billion (from -$61.6 billion). That widening was the result of exports being $11.6 billion less than April exports and imports being $0.3 billion less than April imports.
The key takeaway from the report is that it will factor in as a negative for the net exports contribution to Q2 GDP.
Separately, Datadog (DDOG) will be replacing Juniper Networks in the S&P 500 prior to the open on Wednesday, July 9. There are other corporate news items, but they are largely taking a backseat this morning to the macro developments.
Happy Fourth of July!
