Ebene Magazine – Swing and a Miss: Job report shows far fewer than expected gains, but inflation worries are easing – Ticker Tape

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The non-farm payroll report this morning showed that the economy only created 266,000 jobs, far fewer than expected. And the unemployment rate rose from 6% last time to 6.1%.

(Friday Market Open) This week’s big jobs report is now in the rearview mirror, and Wall Street may be eager to get away from it.

The outside farm payroll report this morning showed that the economy only created 266,000 jobs, far fewer than expected. And the unemployment rate rose from 6% last time to 6.1%. A Briefing.com consensus expected 1 million jobs to be created and the unemployment rate to be 5.8%. Meanwhile, the previous report’s estimate of 916,000 new jobs created in March has been reduced to 770,000.

Most of the profits came from leisure and hospitality, which are basically old jobs coming back. However, manufacturing jobs fell and construction employment remained flat – not a particularly good sign for the economy. One thing to keep in mind, however, is that states are reopening at different rates and it may take some time for these new jobs to get on the books, which means we may not have a report on the jobs added until next month get jobs we expected this time around.

Hourly wages were a bright spot, up 21 cents from a 4 c drop last time. The rising hourly wages mean that some of the jobs created may have been paid higher. That said, the overall benefit (and possibly the silver lining) is that the soft jobs growth data can allay inflation concerns (see below).

If you take the time to process the data today, you can It can be helpful to remember some of the things that led to the job report.

The labor market has improved, but new jobless claims remain high by historical standards, although they are now well below their peak from the financial crisis. The US vaccine rollout went well, but there are still global hotspots where coronavirus cases have increased. And investors seem generally optimistic about the economic recovery, but were concerned about rising inflation.

This mixed sentiment appears to have deterred investors from reopening stocks. While keeping a foothold in « stay-at-home » names, given the spike in yields on longer-term US Treasuries that come with inflation expectations, they have also pulled back mega-cap growth stocks.

And goes with those expectations a double-edged sword of economic recovery – fear the Federal Reserve will tighten monetary policy by curtailing its asset purchase program or raising interest rates, or both.

But this morning the prospect of economic recovery seemed not as good as it used to be, and discussion of a recovery that will overheat the economy has been subdued.

In fact, the 10-year Treasury yield fell to a two-month low on the news around 1.47% as problematic inflation seems further away (the return rebounded to 1.53% before the open). The declining 10-year yield seemed to help growth stocks as futures pegged to the tech-heavy Nasdaq Composite (COMP) jumped after the news.

Futures pegged to the Dow Jones Industrial Average ($ DJI) were back on the news, but especially those pegged to the S&P 500 Index (SPX) held onto their profits. It seems the report might be a boost for some of the stocks that stay at home, but investors also don’t seem to be completely fleeing the reopened stocks

Yesterday, investors seemed bullish ahead of the big employment report, as all three major US indices ended on the green and the $ DJI hit a record close. There may have been a buy-the-dip mentality underway with all three indexes in the red, and there may also have been a delayed positive response due to a better-than-expected weekly jobless claims report.

The first jobless claims for the Saturday’s week ended showed an increase of 498,000 when a Briefing.com consensus expected the number to stand at 530,000. The news seems to be another sign that the economic reopening is progressing well as the US vaccine surge continues and government incentives help support consumer spending.

The financial sector performed best that day. It seems that what investors like about what they see in terms of economic recovery, which could help increase the volume of credit for banks. A booming economy could also be accompanied by rising interest rates and a steeper yield curve, which has a positive effect on the net interest margin and bank income.

Communication services and information technology also performed well, as did the traditionally defensive consumer staples sector. This could indicate that while investors are generally optimistic, they also recognize that we are not completely out of the woods with the pandemic.

Another example of this sentiment appeared to be the commodities sector, where the crude oil futures fell and the US benchmark was below $ 65. India, the second most populous nation in the world, is facing a crisis as the coronavirus case spikes, causing concerns over demand for oil. Amazon (AMZN) confirmed to CNBC that it is postponing its annual Prime Day in both India and Canada, where the number of cases is also increasing.

Next week’s economic calendar is a little weaker, but it still contains important reports on consumer and producer inflation, retail sales, industrial production and consumer sentiment.

And while earnings season slows down a bit next week, investors still have some earnings reports to digest. Among the companies reporting next week, Marriott (MAR) and Walt Disney (DIS) are the ones who could tell us about reopening the economy.

DIS might be particularly interesting since the stock is a mix of Reopening business and stay-at-home trading is there. The Disney streaming service became gangbusters as people started chatting at home. At the same time, the theme parks have given up. Better performance by parks and hotels would now be a vote of confidence in the reopening economy. And we have to see what happens to the Disney part of the business.

HARD OF THE DAY: HOUSE BUILDERS WHO LOOK STRONG. The S&P Homebuilders Select Industry Index ($ SPSIHO – Candlestick) has been looking strong since early March. The index traded above its 20-day simple moving average (yellow line). How far could it go? This could be something worth keeping an eye on. Data source: S&P Dow Jones Indices. Diagram source: The thinkorswim® platform. For illustration only. Past performance does not guarantee future results.

Get healthy: The strong reopening gave WW International (WW), formerly Weight Watchers, another boost, which reported profits after the closing bell on Wednesday. It was interesting to see comments from the company’s chief executive officer suggesting another part of the economy is coming back to life. « It is clear that many members crave personal community and are ready to return to workshops as the environment evolves, » said CEO Mindy Grossman in a call on Wednesday accompanying the company’s results. « In the past two weeks, our personal weekly workshop participation in the US has exceeded our participation in virtual workshops for the first time in over a year. »

Interest rate expectations: As the economy continues to recover, investors have particularly rallied Inflation metrics set. Growth stocks, including names related to mega-cap technologies, often do not do as well in an atmosphere of rising inflation as it undermines expectations for future earnings. Rising inflation can also cause the Federal Reserve to tighten policies. While the futures market continues to overwhelmingly expect the Fed not to hike rates at its next meeting, percentage expectations for the opposite have increased. On April 6, the CME Fedwatch Tool showed that the futures market is calculating a 98.9% chance that the central bank will meet interest rates. However, as of Thursday afternoon, that number had dropped to 89%, which means an 11% chance of a hike. Interest rate hike expectations have fallen since yesterday afternoon, but are still higher than they were on April 6th. However, those expectations could fall again after today’s turnaround and job failure.

Inflation data on tap: Given rising expectations for a rate hike, investors will likely want to keep pace with inflation data next week. The consumer price index for April is released on Wednesday morning and the producer price index for the same month is due to be released the next day. Both reports are usually closely watched by investors, especially what the consumer price index looks like once volatile food and energy prices go away. Last time this core CPI was at an annual rate of 1.6%. While this was up from February’s 1.3%, it is still well below the Fed’s target of 2% inflation, especially given the Fed’s inflation averaging policy. This policy rate is based on the Fed’s preferred measure of inflation for the core consumer spending index, but is also closely monitored for core CPI.

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