North American News
US major indices finish the day in negative territory, but manage to mitigate potential losses
- Losses are pared into the close
The major US indices are all closing lower with the Dow Industrial Average leading the way with a decline of near 1%. However, things could have been worse.
- The Dow industrial average was down as much as 517.18 points
- the S&P index was down as much as -61.76 point
- the NASDAQ and the exposed down as much as 224.40 points
By the close, those levels are more bearable (but still lower). The final numbers show:
- Dow industrial average fell -365.94 points or -1.07% at 33922.73
- S&P index fell -35.15 points or -0.79% at 4411.66
- NASDAQ fell -112.62 points or -0.82% at 13679.03
Markets were spooked by stronger ADP jobs report and also the ISM nonmanufacturing service PMI. Two-year yield is trading around 5% but was as high as 5.118%. The 10-year yield is at 4.037%, up 9.2 basis points. The high yield rate reached 4.081%.
Nonfarm Payrolls Preview: Banks see labour market still quite strong
Nonfarm Payrolls are expected to add 225K jobs in June vs. 339K in May with the Unemployment Rate expected to fall a tick to 3.6%. Average Hourly Earnings are also seen a tick lower to 4.2% year-on-year.
Commerzbank
The labor market is probably neither as strong as the job gain suggests, nor is it just collapsing as other indicators signal. Accordingly, we forecast a job gain of 240K in the June report, which would be less than in May, but still well above the 100K expected on trend based on population trends. Moreover, measured against the consensus forecast of 213K, it would be the 15th consecutive month in which consensus expectations were exceeded. We also expect the unemployment rate to partly reverse May’s jump: we forecast a slight decline to 3.6%. Such a report would probably not make the Fed believe that the labor market is already almost back in balance. Accordingly, we still consider a rate hike of 25 bps at the next meeting at the end of July to be likely.
Danske Bank
We forecast June NFP at 180K, and if we do see further signs of wage inflation cooling followed by a lower Core CPI release on 12 July, we think the Fed could still end up staying on hold in the next meeting.
ING
Last month, the rise in NFP was immensely strong at 339K, but we do expect to see a moderation this month with something closer to the 225K mark. The unemployment rate jumped to 3.7% from 3.4% last month given the household survey data painted a very different picture to the payrolls data – with households reporting that employment actually fell. We see this reversing part of the jump and coming in at 3.6%. Meanwhile, average hourly earnings should soften a touch with another 0.3% MoM print, which would bring the annual rate of wage growth down to 4.2%.
TDS
Payrolls likely remained above-trend in June, registering a firm 240K gain but the data will still represent slowing vs the still booming 317K expansions, on average, in April-May. That is at least directionally what the Fed would be looking for. We also look for the UE rate to drop a tenth to 3.6% and for wage growth to print 0.3% MoM. age growth also likely printed 0.3% MoM again, keeping the YoY pace unchanged at 4.3%.
Credit Suisse
We expect payroll gains to slow to 190K in June, as in our view, all evidence points to a slower, but still historically robust, rate of job gains. We expect the unemployment rate to tick lower to 3.6%, while average hourly earnings should remain at 0.3% MoM.
Deutsche Bank
We expect headline (consensus +225K, DB +200K vs. +339K previously) and private (consensus +200K, DB +175K vs. +283K) payroll gains to slow relative to their three-month averages of +283K and +231K, respectively. This should still edge unemployment back down a tenth to 3.7% (consensus 3.6%) after a surprise spike last month. Hours worked were weak last month and we expect that to bounce from 34.3 to 34.4hrs. Hourly earnings are expected to be steady at 0.3%.
RBC Economics
US jobs report in June likely saw 260K increase in payroll employment, down from the +339K in May, but still at a high level. We expect the unemployment rate likely edged up to 3.8% (calculated separately from the household survey), from 3.7% in May.
NBF
We expect job creation to have slowed to 175K in the month. The household survey could show a slightly bigger gain following May’s unexpected drop, but this should not lead to a change in the unemployment rate (3.7%).
SocGen
We again expect strong employment readings. Our forecast is for a 250K NFP increase and a decline in the unemployment rate to 3.6%.
CIBC
Initial jobless claims jumped in early June, suggesting that hiring could have slowed to a 185K pace over the month. That’s also in line with the decline in aggregate hours worked seen in several industries lately including information, manufacturing, retail trade, and transportation and warehousing. The household survey showed a sizable drop in jobs in May and a return to job growth in that survey would keep the unemployment rate at 3.7%, in line with potentially more progress in participation in the core 25-54 age group, which would have also left room for further job gains without additional wage pressures. We’re below the consensus on hiring which could put pressure on bond yields.
Wells Fargo
We expect NFP growth to moderate in June. Demand for workers continues to subside, with initial jobless claims moving up between survey weeks and the four-week average up nearly 20% over the past year. Meanwhile, job postings in June continued to slide. However, cooling in the jobs market remains incremental rather than abrupt. Therefore, we look for what we would consider to be a still robust gain of 245K new jobs in June, but will be closely watching revisions to May given the 22-year low in the survey response rate. After shooting up 0.3 percentage points in May, we look for the unemployment rate to tick back down to 3.6% in anticipation of some bounce-back in the household measure of employment. The recent trend in average hourly earnings is likely little changed, leading us to expect another 0.3% monthly increase that would push down the 12-month change only slightly to 4.2%.
Citi
After a surprisingly strong 339K increase in nonfarm payrolls in May, we expect a slowing in employment growth in June, although to a still-solid 170K jobs added during the month. This could also be a temporarily softer month of payroll growth with upside risks again to payrolls from July through September. After the unemployment rate unexpectedly rose to 3.7% in May, we expect a decline to 3.6% in June with downside risks. While the expectation for a 170K increase in NFP in June would be the softest since December 2020, not all elements of the June employment report would be indicative of a loosening labor market. Indeed, some of the weakness in June hiring relative to strong seasonal patterns could still be indicative of labor shortages, especially in sectors leisure and hospitality where employment is still below pre-pandemic levels. This would imply upward pressure on wages, and we expect a solid 0.4% MoM increase in average hourly earnings in June.
US June ADP employment +497K vs +228K expected
- The June 2023 employment reading from ADP
- Largest since Feb 2022
- Prior was 278K
Details:
- small (less than 50 employees) +299K vs +116K prior
- medium firms (500 – 499) +183K vs +112K prior
- large (greater than 499 employees) -8K vs +106K prior
- Job stayers 6.4% vs 6.5%
- Job changers 11.2% vs 12.1%
US May international trade balance -69.0B vs -69.0B expected
- US May trade balance
- Prior was -74.6B (revised to -74.4B)
- Goods -91.86B vs -91.13B prior
- Services +22.28B
- US-China deficit $25.21B vs $20.28B prior
US MBA mortgage applications w.e. 30 June -4.4% vs +3.0% prior
- Latest data from the Mortgage Bankers Association for the week ending 30 June 2023
- Prior +3.0%
- Market index 206.5 vs 216.1 prior
- Purchase index 162.4 vs 170.3 prior
- Refinance index 421.3 vs 439.2 prior
- 30-year mortgage rate 6.85% vs 6.75% prior
US JOLTS job openings for May 9.824M vs 9.935M est
- JOLT job openings for the month of May 2023
- Prior month 10.103M revised to 10.320M
- The number of job openings decreased to 9.8 million on the last business day of May, a drop of 496,000 from April.
- The job openings rate declined by 0.3 percentage points to 5.9%.
- Health care and social assistance saw the largest decrease in job openings (-285,000), followed by finance and insurance (-139,000), and other services (-78,000).
- Job openings increased in educational services (+45,000), state and local government education (+37,000), and the federal government (+24,000).
- The number and rate of hires in May were mostly unchanged at 6.2 million and 4.0%, respectively.
- There was an increase in hires in durable goods manufacturing (+41,000).
- The number and rate of total separations, including quits, layoffs and discharges, and other separations, changed little at 5.9 million and 3.8%, respectively.
- The number of quits increased to 4.0 million (+250,000), with the rate rising to 2.6%.
- Health care and social assistance (+69,000) and construction (+57,000) saw an increase in quits.
- The number of layoffs and discharges remained stable at 1.6 million, with the rate staying at 1.0%.
- Retail trade saw an increase in layoffs and discharges (+87,000).
- The number of other separations remained largely unchanged in May at 301,000
US June S&P Global final services PMI 54.4 vs 54.1 prelim
- The final June 2023 PMI from S&P Global
- Prelim was 54.1
- Prior was 54.9
- Strong upturn in new orders
- New export orders rose for a second month
- “On the price front, service sector firms saw a marked rise in cost burdens at the end of the second quarter.”
- Composite final PMI 53.2 vs 53.0 prelim
Atlanta Fed GDPNow Q2 estimate rises to 2.1% from 1.9% last
- The GDP model for Q2 growth
In their own words:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2023 is 2.1 percent on July 6, up from 1.9 percent on July 3.After recent releases from the US Census Bureau and the Institute for Supply Management, the nowcast of second-quarter real gross private domestic investment growth increased from 8.8 percent to 9.6 percent, while the nowcast of the contribution of the change in real net exports to second-quarter real GDP growth increased from -0.75 percentage points to -0.72 percentage points.
US June ISM services 53.9 vs 51.0 expected
- June US services survey from the Institute for Supply Management
- Prior was 50.3
Details:
- employment index 53.1 versus 49.2 prior
- new orders index 55.5 versus 52.9 expected
- prices paid index 54.1 versus 56.2 prior
- new export orders 61.5 versus 59.0 last month
- imports 54.6 versus 50.0 last month
- backlog of orders 43.9 versus 40.9 last month
- inventories 55.9 versus 58.3 last month
- supplier deliveries 47.6 versus 47.7 last month
- inventory sentiment 54.0 versus 61.0 last month
US initial jobless claims 248K versus 245K estimate
- US jobless claims and continuing claims for the current week
- Last week 239K revised 2236K
- The advance figure for seasonally adjusted initial unemployment claims for the week ending July 1 was 248,000, an increase of 12,000 from the previous week’s revised level.
- The previous week’s level was revised down by 3,000 from 239,000 to 236,000.
- The 4-week moving average was 253,250, a decrease of 3,500 from the previous week’s revised average, which was revised down by 750 from 257,500 to 256,750.
- The advance seasonally adjusted continuing claims for the week ending June 24 was 1,720,000, unchanged from the previous week’s rate of 1.2 percent.
- The number of continuing claims decreased by 13,000 from the previous week’s revised level, which was revised down by 9,000 from 1,742,000 to 1,733,000.
- The 4-week moving average of continuing claims was 1,746,500, a decrease of 8,750 from the previous week’s revised average, which was revised down by 2,250 from 1,757,500 to 1,755,250
US 2-year yield rises to highest since 2007, boosting the US dollar
- US 2-year breaks the March high
The market is re-thinking the path of the Fed funds rate, along with how high the Fed will hold rates. That’s in light of an extremely strong ADP private payrolls report, showing 497K jobs created in the month.
The 2-year yield is up 13.3 basis points to 5.08%, narrowly above the March high and the highest since 2007. The 2006 high is 5.29%.
US June Challenger layoffs 40.71k vs 80.09k prior
- Latest data released by Challenger, Gray, and Christmas Inc – 6 July 2023
- Prior 80.09k
US layoffs fall to a seven-month low in June, as employers were seen cutting 40,709 jobs – down 49% compared to May. Still, the number for the month is well above that of the same period last year (32,517 job cuts). The year-to-date figure shows 458,209 job cuts so far and that is well above the 133,211 job cuts announced in the first six months of 2022.
Fed’s Logan says would have been ok with a June rate hike
- Comments from the Boston Fed leader
- More rate hikes are likely necessary
- Very concerned whether inflation will cool quickly enough
- Challenging and uncertain environment enabled June pause
- Process of rebalancing economy slower than expected
- Skeptical about lagged impact of past Fed rate hikes
- Housing market may have bottomed out
- Housing sector rebound might threaten progress on inflation
Canada May trade balance -3.44B vs +1.94B expected
- Canadian May trade data
- Prior was +1.94B
- Exports 61.53B vs 64.85B prior
- Imports 64.97B vs 62.91B prior
Commodities
Silver dips below $23.00 and the 200-day EMA as US yields surge
- Silver slides 1.82% as soaring US Treasury bond yields and heightened odds of a Fed rate hike in July weigh heavy.
- Silver’s drop below the 200-day EMA may trigger further losses unless the $22.53 swing low offers a reprieve.
- A possible rebound could see Silver testing the $23.00 mark and, if breached, a recovery to the 20-day EMA at $23.06.
Silver price dropped below the $23.00 mark as US Treasury bond yield soared after the latest Fed’s minutes and a tranche of US economic data increased the odds for Fed’s July rate hike. At the time of writing, the XAG/USD is trading at $22.69, down 1.82%.
WTI crude oil settles at $71.80
- Up $0.01 or 0.01%
The Price of WTI crude futures are settling at $71.80.That’s just one penny higher than yesterday’s settlement level at $71.79. The high price it today it reached $72.34. The low was at $70.22.
Oil prices experienced volatility due to various factors.
Initially, prices fell in response to the Federal Reserve’s more hawkish stance and following strong ADP employment data. That led to risk aversion and increased demand for the US dollar.
However, later the release of bullish weekly inventory data by the EIA helped reverse the bearish trend.The EIA reported a larger-than-expected drawdown of 1.5 million barrels in US crude stocks, along with significant draws in other petroleum products.Finally, sources also indicated that OPEC would maintain an optimistic outlook on oil demand growth for the next year, projecting a slowdown compared to this year but still a higher-than-average increase.
US EIA weekly crude oil inventories -1508K vs -983K expected
- US weekly EIA oil inventory data
- Prior was -9603K
- Gasoline -2550K vs -1417K exp
- Distillates -1045K vs +296K exp
- Refinery utilization -1.1% vs +0.1% exp
- SPR release 1.4 million barrels (the final 1.3 million barrels coming next week)
Private data from late yesterday:
- Crude -4382K
- Gasoline +1615K
- Distillates +604K
EU News
European equity close: Total rout
- Closing changes in Europe
- Stoxx 600 -2.4%
- German DAX -2.7%
- FTSE 100 -2.2%
- French CAC -3.2%
- Italy MIB -0.6%
- Spain IBEX -1.2%
Germany May factory orders +6.4% vs +1.2% m/m expected
- Latest data released by Destatis – 6 July 2023
- Prior -0.4%; revised to +0.2%
Germany June construction PMI 41.4 vs 43.9 prior
- Latest data released by HCOB – 6 July 2023
- Prior 43.9
UK June construction PMI 48.9 vs 51.0 expected
- Latest data released by S&P Global – 6 July 2023
- Prior 51.6
BOE’s Bailey says cannot give a date on when interest rates will start to come down
- Remarks by BOE governor, Andrew Bailey
- Expects inflation to fall markedly but it will be hard for borrowers still
- Moves by regulators on retail prices will help to lower inflation
- There is evidence some retailers are overcharging customers
SNB’s Maechler: Further rate hikes cannot be ruled out
- Remarks by SNB governing board member, Andrea Maechler
- It cannot be ruled out that we will need to further hike interest rates
Other News
China’s Xi calls to deepen war, combat planning in visit to Eastern Theater Command
- A little bit of added posturing by China on the geopolitical front
For some context, the Eastern Theater Command resides in the Jiangsu province and is responsible for the security of the Easter China Sea and Taiwan Strait. Considering recent China-Taiwan tensions, you can see why this is a particularly important area.
Anyway, Xi has made a visit to the command there and urged the military to deepen war and combat planning so as to increase the chances of victory in the event of an actual combat, according to China’s state media.
That is definitely some heavy posturing on their end.
US Treasury secretary Yellen to meet with China’s Liu He on Friday
- According to a senior US official cited by Reuters
The meeting will also include US business leaders and Yellen will then also meet with Chinese premier, Li Qiang, after. The official says that Yellen will address “unfair practices” by China and that the US has always made it clear that it does not support a decoupling between the two major economies.
Liu He might be retired but he is still one of Xi Jinping’s most trusted confidant, especially on US-related matters. That would explain the meeting between the two.
China’s state media commentary on tools to deal with ‘panic’ yuan sell off
It’s a mystery to me why the People’s Bank of China would be referring to a panic sell in yuan, and yet here we are:
A response from Mizuho Bank in Hong Kong agrees:
- “The state media commentary is intended to shore up investor confidence on yuan exchange rate and the depreciation trend will remain in control given a basket of policy tools to stabilize yuan if necessary,”
- “The strengthened fix indicates that the PBOC is still in alert mode to defend the currency.”
Cryptocurrency News
SEC vs. Ripple update: If Ripple loses, the firm will appeal to the Supreme Court says John Deaton
- Pro-XRP attorney John Deaton responded to an XRP holders question on what’s next for the community if SEC wins against Ripple.
- Deaton says Ripple will appeal the case in the Supreme Court, the attorney believes the firm is likely to win.
- SEC’s win would result in a status quo for the next two to five years while Ripple appeals to the Supreme Court.
XRP holder community is speculating about the outcome of the Securities and Exchange Commission (SEC) lawsuit. An XRP holder asked for pro-XRP attorney John Deaton’s opinion on what to expect if SEC wins the lawsuit against Ripple.
Deaton said that if the SEC wins, the outcome won’t be favorable for XRP holders as there would be two to five years of status quo and no resolution. According to Deaton, Ripple will file for an appeal in the Supreme Court and the remittance firm is likely to win “hands down.”
New York Fed successfully tests bespoke digital asset payment system even though technology already exists
- The New York Federal Reserve, Citi, HSBC and SWIFT participated in a distributed ledger (DLT)experiment.
- A tokenized form of the US Dollar was used in the experiment, however, it does not endorse the development of a CBDC.
- Stablecoins like USDC and DLT payment systems such as Ripple already exist and have found more use cases outside of the US.
Distributed Ledger Technology (DLT), the underlying tech behind cryptocurrencies, was hailed as bringing greater anonymity, accuracy and security to the process of making a transaction. The US, however, now appears to be straying away from existing options and instead developing its own.
DLT, not crypto, could find adoption in the US
Over the past few months, the New York Federal Reserve’s (NYFR) Innovation Center has run an experiment using DLT. The NYFR called this technology a “regulated liability network” and focused on testing whether banks and other major financial institutions could conduct settlements using digital Dollars without impacting the legal treatment of deposits.
Participating in this experiment were banks such as HSBC, Bank of America, and Citi, along with institutions including Mastercard and payment network SWIFT. Conducted on a private blockchain, the experiment bore successful results.
The outcome could be the development of an easy and effective way to enhance domestic as well as cross-border payments vastly.
Furthermore, the use of a digital dollar increased interest in a potential Central Bank Digital Currency (CBDC).
However, the central bank did not present any views on CBDC and noted that the project does not reflect any opinion regarding them.
While the creation of a digital Dollar would not bear any legal trouble, its need is not immediate, thus making its creation rather improbable.
Follow our recently launched pages. Join our community and never miss a beat in the dynamic world of trading.
https://www.facebook.com/BilalsTechLtd
https://www.linkedin.com/company/bilals-tech/
