Stocks Slide After June's U.S. Payroll Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.28%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.55%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.11%.

Stocks are lower after the U.S. June payrolls report was released this morning. U.S. June nonfarm payrolls rose +209,000, weaker than expectations of +230,000 and the smallest increase in 2-1/2 years. 

Also, May nonfarm payrolls were revised lower to +306,000 from the initially reported +339,000.  The June unemployment rate fell -0.1 to 3.6%, right on expectations.

U.S. June average hourly earnings rose +0.4% m/m and +4.4% y/y, stronger than expectations of +0.3% m/m and +4.2% y/y.

The markets are discounting the odds at 91% for a +25 bp rate hike at the next FOMC meeting on July 25-26.  The markets are anticipating a peak funds rate of 5.42% by November, which is +34 bp higher than the current effective federal funds rate of 5.08%.

Global bond yields are mixed.  The 10-year T-note yield fell back from a 7-3/4 month high of 4.090% and is down -1.2 bp at 4.018%.  The 10-year German bund yield rose to a 3-3/4 month high of 2.678% and is up +0.2 bp at 2.629%.  The 10-year UK Gilt yield fell back from a 14-year high of 4.712% and is down -2.1 bp at 4.639%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.32%.  China’s Shanghai Composite Index today closed down -0.28%.  Japan’s Nikkei Stock Index today closed down -1.17%.

 Today’s stock movers…

Energy stocks and energy service providers are climbing today, with the price of WTI crude up more than +1% at a 1-month high. As a result, Haliburton (HAL), Schlumberger (SLB), and Phillips 66 (PSX) are up more than +2%.  Also, Marathon Petroleum (MPC), ConocoPhillips (COP), Marathon Oil (MRO), Diamondback Energy (FANG), Baker Hughes (BKR), and Valero Energy (VLO) are up more than +1%. 

JPMorgan Chase (JPM) is up more than +1% after Wolfe Research upgraded the stock to outperform from peer perform. 

Regional bank stocks are moving higher today, with Zions Bancorp (ZION) and Comerica (CMA) up more than +2%.  Also, Truist Financial (TFC), M&T Bank (MTB), Regions Financial (RF), Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), and Citizens Financial Group (CFG) are up more than +1%.

U.S.-listed Chinese stocks are climbing today, with Alibaba Group Holding (BABA) up more than +5% after Reuters reported that authorities are likely to hand down a fine of at least 8 billion yuan ($1.1 billion) on Ant Group, a move that will bring an end to the prolonged regulatory probe of the company. Also, JD.com (JD) and Baidu (BIDU) are up more than +2%, and PDD Holdings (PDD) is up more than +1%. 

Warner Bros Discovery (WBD) is down more than -1% to lead losers in the Nasdaq 100 after Wolfe Research downgraded the stock to peer perform from outperform.

Costco Wholesale (COST) is down more than -1% after reporting Jun comparable same-store sales fell -1.4%, a bigger decline than the consensus of -0.4%. 

Levi Strauss (LEVI) is down more than -5% after it cut its full-year adjusted EPS forecast to $1.10-$1.20 from a prior estimate of $1.30-$1.40, weaker than the consensus of $1.29.   

Walmart (WMT) is down more than -1% on signs of insider selling after an SEC filing showed Executive Vice President Rainey sold $1.35 million of shares on Monday.

Biogen (BIIB) is down more than -1% on concerns that testing requirements and side effect warnings for its Alzheimer’s drug developed with Eisai Co may limit its use. 

Across the markets…

September 10-year T-notes (ZNU23) today are up +7 ticks, and the 10-year T-note yield is down -1.2 bp at 4.018%.  Sep T-notes today recovered from early losses, and the 10-year T-note yield fell back from a 7-3/4 month high of 4.090%.  Short covering emerged in T-notes this morning as stock prices slumped.   T-notes today initially moved lower after the Jun payrolls report kept expectations high for the Fed to raise interest rates at the July 25-26 FOMC meeting.  T-note prices are also under pressure on an increase in inflation expectations after the 10-year breakeven inflation rate rose to a 6-week high today at 2.285%. 

The dollar index (DXY00) today is down by -0.68% and posted a 1-1/2 week low. The smaller-than-expected increase in U.S. Jun nonfarm payrolls is weighing on the dollar.  Also, strength in the yen is undercutting the dollar after the yen rallied to a 2-week high against the dollar today on signs of wage pressures in Japan, which may prompt the BOJ to adjust its easy policy stance as soon as this month’s meeting.

EUR/USD (^EURUSD) is up by +0.52% and posted a 1-week high.  The euro today moved higher after bund yields jumped on hawkish comments from ECB President Lagarde.  The 10-year German bund yield posted a 3-3/4 month high today, strengthening the euro’s interest rate differentials after Lagarde said policymakers still have "work to do" to bring inflation under control.   The upside in EUR/USD was limited after today’s economic news showed that German May industrial production unexpectedly fell. 

ECB President Lagarde said policymakers still have "work to do" to bring inflation under control, and the ECB "won't hesitate" to act if officials see a simultaneous uptick in both company margins and wages.

German May industrial production fell -0.2% m/m, weaker than expectations of no change.

USD/JPY (^USDJPY) is down -1.32%.  The yen today rallied sharply to a 2-week high against the dollar. The yen gained on speculation that today’s better-than-expected Japanese economic news on labor cash earnings may push the BOJ to adjust its easy policy stance as soon as this month’s meeting.  The strength in earnings pushed the 10-year JGB bond yield to a 1-month high, which is also supportive of the yen.  In addition, the weakness in stocks today has boosted the safe-haven demand for the yen.

August gold (GCQ3) today is up +23.8 (+1.24%), and Sep silver (SIU23) is up +0.435 (+1.90%). Precious metals prices this morning are moving higher after the dollar index fell to a 1-1/2 week low.  Also, today’s smaller-than-expected increase in U.S. Jun nonfarm payrolls was supportive for gold as it eases the pressure on the Fed to keep raising interest rates.  However, hawkish comments today from ECB President Lagarde were bearish for metals when she said policymakers still have "work to do" to bring inflation under control.  Also, ongoing fund liquidation of gold is a bearish factor for prices as holdings in gold ETFs fell to a 3-1/2 month low on Thursday.

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