Consensus expectations for tomorrow’s release of non-farm payrolls is now +862,500. Consensus for the Unemployment Rate is 5.7% (down from 5.9% in June), an unchanged average workweek at 34.7 hours and a +0.3% month-over-month increase in wages/+3.9% year-over-year (vs. +0.3% and +3.6% in June).
Today’s ADP private payroll numbers was softer than expected at +330,000. The report has a relatively weak positive correlation to official BLS data (due Friday), but today’s miss delays tapering expectations at the margin.
Friday’s release of the July Jobs report is the next near-term macro catalyst. Consensus for Non-farm payrolls is currently +825,000, which maps to a 5.7% Unemployment Rate, down from 5.9% last month.
ISM deceleration to 59.5 from 60.6 last month is relatively meaningless and partially reflects ongoing bottleneck pressures. The goods sector has been held back by what looks like a massive inventory drawdown (largest in decades) during Q2.
The S&P 500 Value Index (SVX) has been relatively resilient over the past ~2 months, despite lower bond yields and curve flattening.
Real yields are higher this morning after Powell’s press conference takeaways pull taper announcement expectations slightly forward, while holding rate hike expectations in check (“absolutely no sense of panic” about inflation).
Positioning in Tech is overcrowded, particularly after SNAP’s blowout results last week drove incremental interest in mega-cap names given broad Q2 earnings trends and recent rally in Treasuries.
Global growth concerns emerged about a month ago when UK delta variant case counts started to rise. But UK case counts have declined significantly over the last six days with similar trends in Australia.
This is the busiest week on the summer catalyst calendar with peak Q2 earnings volume and no shortage of macro data/events. Wednesday’s Fed meeting in focus after June’s meeting resulted in hawkish takeaways and lower real yields (nominal yields – inflation) that pushed growth/Tech outperformance.
Substantial declines in the Unemployment Rate are probably required before 10-year yields can inflect meaningfully higher…through resistance at ~1.45%.
