Keystone's Midday Market Action; US Monthly Jobs Report

The circus comes to town once each month. Here is this morning's set-up and results after the Monthly Jobs Report;

The tension increases ahead of the jobs number. The consensus for the Monthly Jobs Report is 188K jobs. Last month was the robust 292K jobs. Revisions are important. The unemployment rate is expected to remain flat at 5.0%.

The consensus for the Average Hourly Earnings is +0.3% compared to last month’s 0.0%. Inflation, that the Federal Reserve has attempted to create for the last seven years with their obscene Keynesian spending, cannot exist without wage inflation. The wage data is more important than the headline jobs number and rate. Since the Fed has begun a rate hike cycle, Chair Yellen desperately wants to see wages increasing and will want the wage data to meet the +0.3% estimate and more. If wages remain weak, Yellen will have to ‘take a powder’ to collect herself. Wages are expected to rise due to minimum wage raises.

Minutes before the data, the S&P futures are down -2. Dow -5. Nasdaq flat. WTIC oil 32.03. Brent oil 34.80. Natty 2.045. Gold 1160. Silver 14.92. Copper 2.123. DAX -0.5%. CAC +0.2%. FTSE +0.1%.

Euro 1.1211. Euro/yen 130.78. Dollar/yen 116.65. Pound 1.4553. Mexican peso 18.2009. Canadian dollar 1.3746. Dollar/yuan 6.5724.

Treasury yields are; 2-year 0.70%, 5-year 1.22%, 10-year 1.84%, 30-year 2.69%. The 2-10 spread is 114 bips.

At 8:30 AM EST (1:30 PM London; 2:30 PM Frankfurt; 10:30 PM Tokyo), the Monthly Jobs Report is 151K jobs. The unemployment rate is under 5.0% to 4.9% the lowest since February 2008. November jobs are revised up 28K from 252K to 280K and December’s blowout number is revised lower by 30K from 292K down to 262K. The two months of revisions net a 2K job gain. Private sector jobs are up 158K. The retail sector gains 58K jobs, food service 47K, healthcare jobs gain 37K and manufacturing gains 29K jobs. Education and transportation jobs are slashed. Sadly, 105K of the 151K jobs reported are minimum wage jobs.

The Average Hourly Earnings are up +0.5% versus the +0.3% consensus and 0.0% last month. Wages are up +2.5% annually. The labor participation rate is 62.7% as compared to last month’s 62.6% now up for two consecutive months. The U-6 rate is unchanged at 9.9%. The average workweek is up +0.1 to 34.6 hours versus the consensus expectation and prior month’s number at 34.5 hours.

Fed Chair Yellen will breathe a sigh of relief since the unemployment rate is under 5%, the labor participation rate increases and wages are rising. The four-hike rate path for this year is back on the table. Equities sell off hard on the results. The S&P’s drop 10 handles. Traders realize the potential March hike is back in play and hit the sell button.

Humorously, the jobs number may have created more confusion than clarity for markets. The headline jobs at 151K is a miss hinting at a sluggish economy but wages are increasing indicating a robust economy. Drilling down, wages were expected to jump higher due to seasonality factors and many large companies increasing minimum wage rates for employees. Thus, those not impressed with the economy, Yellen, the Fed and the stock market will proclaim that wages only rise due to the minimum wage increases while market and Federal Reserve cheerleaders will shout to the masses that the economy is recovering since companies are raising wages.

Futures react wildly to the down side. Three minutes after the data release, S&P -8. Dow -48. Nasdaq -19. DAX -0.9%. CAC -0.2%. FTSE -0.1%. Europe follows the US lower. US 10-year yield 1.839%. Euro 1.1207. Dollar/yen 116.61. Pound 1.4537. USD 96.54.

WTIC oil is flat at 31.70. Brent oil is up +0.3% at 34.55. The US Trade Deficit is up +2.7% to $43.4 billion in December.

At 8:36 AM, S&P -7. Dow -45. Nasdaq -21. WTIC 31.81. Brent 34.62. Euro 1.1199.

At 8:39 AM, S&P -8. Dow -55. Nasdaq -17. WTIC 31.77. Brent 34.57. Euro 1.1176. Gold 1158. Silver 14.89. Copper 2.113. The  market reaction to the jobs report is subdued.

Treasury yields are; 2-year 0.73%, 5-year 1.25%, 10-year 1.86%, 30-year 2.706%. German bund 0.309%. Japan 10-year yield 0.035%. WTIC 31.60. Brent 34.40.

S&P -5. Dow -27. Nasdaq -9. Euro 1.1135.

At 9:30 AM EST, US markets begin trading gapping lower. Equities take on a weaker profile than the futures indicate. Data companies are crushed after Tableau’s weak results. DATA crashes -50%. SPLK -15%. QLIK -14%. LNKD -33%. Over $10 billion in LinkedIn’s market cap disappears in a heartbeat. CRM -7.3%. The tech sector is pounded with XLK down -1.1%. Democratic presidential candidate Hillary Clinton put JCI and VRX on notice during last evening’s debate and the stocks drop -0.4% and -0.2%, respectively.

Energy stocks are bludgeoned. XLE -2%. HES -10%. DVN -6.1%. MRO -5%. CHK -5.3%. MUR -4.1%. HBI collapses -10%; long underwear sales are weak due to the unseasonably warm winter. Steel giant MT collapses -8%. CMI -1%. Financials and consumer staples are marginally higher. Utilities tank. XLU -1.4%.

The S&P 500 is down 11 points, Dow down 56 points and Nasdaq down 33 points. WTIC oil is down -1.8% to 31.15. Brent oil is down -1.3% to 34.03. Weaker oil prices drag the stock market lower as  usual. Natty 2.027. Gold 1148. Silver 14.72. Copper 2.095.

At 9:48 AM, the SPX is down 17 points, -0.9% to 1898 and dropping. The Dow Industrials are down 95 points, -0.6%, to 16321. The Nasdaq is down 59 points, -1.3%, to 4452. The Russell 2000 small caps are down 11 points, -1.1%, to 1004. VIX 22.71. TRAN -0.7%. Euro 1.116. USD 96.96. WTIC oil 31.07. Brent oil 33.94.

Treasury yields are; 2-year 0.73%, 5-year 1.26%, 10-year 1.87%, 30-year 2.71%. German bund 0.309%. Japan 10-year yield 0.029%. Gold 1149.

At 10:07 AM, stocks attempt to stabilize. The SPX is down 11 points, Dow down 50 points and Nasdaq down 53 points. VIX 22.09. Trannies are positive; TRAN +0.2%. USD 97.20. The dollar is strengthening and yields floating higher so market participants believe the likelihood of a second Fed rate hike increases. Thus, pressure remains on equities.

As always, follow all daily market events with Keystone the Scribe.