07 Jul Job Gains Climb and Global Bond Markets Stabilize
Stocks and bonds are both stabilizing this morning after taking a beating yesterday. It seems that each market is having a difficult time in the current economic environment. Stocks because of slowing economic concerns and bonds mainly following suit with the European bond markets which are panicked over their government slowing purchases of government bonds. European bonds are acting like bonds in the US reacted during what has tenderly been named “taper-tantrum.” Germany, for example, had their equivalent to our 10 Year Treasury Note yield move .5% higher yesterday alone. This sent a shock through the global bond market, pushing yields higher across most governments. Thanks in part to Japan for having a bond offering at a very low rate, bonds are now finding stability at current levels.
The June jobs report was announced this morning by the Bureau of Labor Statistics (BLS) showing that 222,000 new payrolls were added to the economy. This is well above the 178,000 anticipated by the markets, and more in line to what we would expect to see during the month of June. With summer jobs and seasonal businesses in full swing, June tends to surprise economists with strong numbers. Once again, economists grossly underestimated the number and now will look for ways to justify their miss. Although I haven’t yet been able to review the details of the report, I’m assuming the service sector is largely responsible for the increase.
The Unemployment Rate tool was a welcomed step higher, rising from a 16 year low of 4.3% up to 4.4%. This shows that more people entered the job market than the number that found new jobs. To help keep wage inflation at bay, we hope to see the Labor Force Participation Rate moving higher. For now, wage growth appears under control, coming in at only a .2% increase in the month of June. If we don’t see that number increase, inflation will have a hard time taking hold.
Mortgage bonds remain beneath their 100-day moving average and continue to show signs of weakness. We will maintain our locking bias.