US Monthly Jobs Report a Paltry 38K Jobs

Markets are reacting to the Monthly Jobs Reports a paltry 38K jobs. As always, Keystone the Scribe provides the daily detailed chronology of the market moves and explains why they occur. Below is an abbreviated version of today's drama:

At 8:15 AM EST (1:15 PM London; 2:15 PM Frankfurt), analysts are expecting 158K jobs with a 4.9% unemployment rate for the Monthly Jobs Report. A 4-handle on the rate will receive attention. Last month was a gain of 160K jobs with a 5.0% unemployment rate. The VZ strike was occurring in full force last month with thousands of telecom workers not counted on the employment ranks so it is a mystery how Verizon will impact the jobs number. Private Payrolls are expected at 150K jobs versus last month’s 171K.

Average hourly earnings, perhaps more important than the headline job and rate numbers, is expected at +0.2% month-on-month compared to last month’s +0.3%. Inflation, that the Federal Reserve has tried to create for over seven years with obscene Keynesian money printing, cannot exist without wage inflation. The Fed will not hike rates if the wage data is weak. If wages come in at +0.2% and higher, then the door remains open for a June or July rate hike.

The Average Workweek is expected to come in at 34.5 hours matching the prior month. The Labor Participation Rate is 62.8%, at multi-decade lows, and will be monitored for any change. The United States needs to get back to work after a seven-year lull which would be reflective in the labor participation moving higher. The tension increases as the numbers hit the news wires.

S&P +1. Dow +20. Nasdaq flat. DAX +0.5%. CAC +0.5%. FTSE +0.9%. Euro 1.1156. Dollar/yen 108.79. Pound 1.443. WTIC 48.90. Brent 49.81. Gold 1216.

At 8:30 AM EST (1:30 PM London; 2:30 PM Frankfurt; 8:30 PM Hong Kong; 9:30 PM Tokyo), the Monthly Jobs Report drops a bomb on Wall Street. Boom. Jobs increase by only a paltry 38K. Market participants are in shock. Jaws drop. The unemployment rate collapses to 4.7%. The very important Average Hourly Wages are steady at +0.2%.

The 38K jobs are the lowest number since September 2010. The low unemployment rate is at lows not seen since November 2007 one month after the major top printed in the stock market. The revisions are disappointing with Mach and April down 59K jobs. March jobs are cut from the original 208K number to 186K and April is reduced from 160K down to 123K jobs. The 2-handles are disappearing on the jobs numbers and the monthly job gains can now barely keep up with new entries into the work force. The three-month moving average for jobs drops to 116K jobs. Why would President Obama be bragging about the economy like he did this week? Private sector payrolls are up a tiny 25K jobs.

Job losses are broad-based. 34K jobs are lost in the Information component which is the effect from the Verizon strike. 15K jobs are lost in construction. 10K jobs are lost in mining. 18K jobs are lost in manufacturing. Temporary help loses 21K workers. It is a sorry state of affairs if companies are not hiring temporary workers; it indicates that the backlogs are weak and the economy remains sluggish and lackluster.

Job victories occur in the healthcare sector gaining 46K jobs. People must be worrying themselves sick these days. Business and professional services gain 10K workers. People must be looking for a jobs. Food and drink jobs increase by 22K. People must be drinking their troubles away.

The Labor Participation Rate is 62.6% dropping -0.2% month on month. This is sad. Less and less people are working. They want to work; there are simply no jobs. The labor participation is the lowest since the 1970’s.

30 years ago in the States, it was odd to see a man in a department store during daytime hours Monday through Friday since most men had full time jobs. Walk into a WMT, TGT or any other store in 2016, and there are as many men as women if not more. America desperately needs to get back to work. Republican POTUS nominee Trump receives much of his popularity from people that want to go back to work. The President Obama years have been very tough on the middle class and poor that deal with many years of long-term structural unemployment. The U-6 rate is steady at 9.7%. The Average Workweek is 34.4 hours in line with the revised-lower 34.4 hours from last month.

At 8:32 AM EST, S&P -7. Dow -45. Nasdaq -14. WTIC oil 49.16. Brent oil 50.13. Market participants are in shock. The low headline jobs number is jaw-dropping. It will be interesting to hear the Whitehouse spin on the paltry result. The 4-handle on the unemployment rate is stunning. A low rate should be met with euphoria and joy; instead it receives disdain since many Americans are simply not counted anymore even though they remain out of work. The prior revisions that are adjusted lower is a very negative development since trends occur over multiple months and March and April was just punched in the face.

At 8:33 AM EST, the USD drops to 94.83 on less chance of a Fed rate hike. The drop in the dollar sends commodities higher including gold. Fed Funds futures forecasting the rate hikes plummet. The chance for a June Fed hike is down to 4% from the 22% earlier this morning and 34% only a couple days ago. Comically, the chance for a June hike was 4% about six weeks ago and then ran up to 34% after the Federal Reserve members kept jawboning a hike; now the chances have made a round trip back to a near-zero chance of a June hike.

Fed Funds futures indicate only a 38% chance of a July hike, 49% for September, 52% for November, 68% for December and 71% chance for February 2017. There is not even a 50% chance of a Fed hike until November and market participants do not expect the Federal Reserve to hike the key rate until 2017. This is a major disconnect from the Fed that keeps threatening a June or July hike.

S&P -5. Dow -34. Nasdaq -10. DAX -0.3%. CAC -0.1%. FTSE +0.6%. WTIC 49.09. Brent 50.03. Natty 2.42.

S&P -7. Dow -50. Nasdaq -13. USD 94.67. The euro is above 1.12 to 1.1259 as the US dollar weakens. The dollar/yen pair is under 108 to 107.81 as the dollar weakens and the yen strengthens. Pound 1.452. The US 2-year yield is 0.807%.

At 8:35 AM, S&P -8. Dow -52. Nasdaq -13. US Treasury yields are; 2-year 0.799%, 5-year 1.265%, 10-year 1.737%, 30-year 2.543%.

At 8:38 AM, S&P -8. Dow -48. Nasdaq -12. Euro 1.1253. Dollar/yen 107.90. Pound 1.4494. Gold catapults +1.8% higher on the lower dollar to 1235. Silver is up +2.1% to 16.37. Copper is up +2.9% to 2.13.

At 8:40 AM, S&P -6. Dow -40. Nasdaq -10. DAX -0.2%. CAC -0.1%. FTSE +0.6%. WTIC oil 48.98. Brent oil 49.92.

The smoke is clearing and the dust is settling after the bombshell jobs report. Shell-shocked traders are trying to make sense of the surprising data and assess the impact to markets going forward. S&P -10. Dow -65. Nasdaq -16.

At 9:05 AM EST, S&P -8. Dow -61. Nasdaq -16. DAX -0.4%. CAC -0.5%. FTSE +0.4%. Euro 1.1297 near 1.13. Dollar/yen 107.59. Pound 1.453.

WTIC 49.03. Brent 49.91. Gold is up 27 dollars, +2.3%, to 1240. Silver is up +2.4% to 16.41.

Treasury yields are; 2-year 0.78%, 5-year 1.24%, 10-year 1.72%, 30-year 2.53%. German bund 0.074%. Japan 10-year yield -0.109%.

The banks are slapped in the pre-market. BAC -2.7%. C -2.8%. JPM -2.1%. WFC -1.6%. Department Store Macy’s is sold off; M -0.7%.

International Trade data shows the trade deficit narrower than expected at -$37.4 billion. Exports are up +1.5%. Industrial supplies and auto sectors are strong. Imports gain +2.1%. Capital goods orders are increasing which is encouraging for the economy.

The new moon peaks for the month tomorrow, Saturday, 6/4/16, at 10:59 PM EST. Stocks are typically bearish moving through the new moon each month. The next three days are the darkest overnight periods of the month so military operations may increase by the forces that employ superior night vision technology.

Investors Intelligence survey indicates elevated bullish levels at 45.4% and reduced bearish levels at 23.7%. Sentiment is typically a contrarian indicator. Traders are very bullish on the stock market currently. The bullish sentiment is further verified by the low volatility (VIX) and low put/call ratio (CPCE). Complacency hints that markets are toppy in the near-term and may need to pull back for a rest.

At 9:30 AM EST, US stocks collapse lower out of the gate. Banks are smacked hard. XLF -1.6%. BAC -3.6%. C -4%. JPM -2.7%. WFC -2.2%. The healthcare sector trades lower despite creating the most jobs; XLV -0.5%.

Utilities are a winner with XLU up +1.3%. Chips are generally elevated from the Ambarella and Broadcom joy last evening. AMBA +5.6%. AVGO +6.8%. SOX +0.7%. SMH +0.5%. XSD -0.2%. INTC -0.3%. NXPI -0.4%. MU -1.5%. Consumer staples are higher as shown by XLP gaining +0.2%. Investors are flocking into utilities and staples for safety and a dividend but they are likely only covering themselves with a fig leaf. Consumer discretionary stocks are lower. XLY -0.6%. Energy stocks are positive.

At 9:39 AM EST, the S&P 500 is down 10 points, -0.5%, to 2095. The Dow Jones Industrials are down 91 points, -0.5%, to 17747. The Nasdaq Composite is down 26 points, -0.5%, to 4946. The Russell 2000 small caps are down 5 points, -0.5%, to 1165. The four major indexes are each uniformly down -0.5% indicating that the bulk of the trading, over 80% of the trading transactions, are occurring by programmed algorithms and robots. VIX 14.17.

Euro 1.1315. Dollar/yen may print a 106-handle now at 107.05. BOJ Governor Kuroda is drinking sake trying to drown his troubles as the yen strengthens. Japanese stocks will be hammered come Monday if the trend remains. Pound 1.4562. Oil is down -0.4% on the session despite the weaker dollar. WTIC 48.92. Brent 49.76.

15 minutes into trading, the PMI Services Index is 51.3 below the prior 52.8 but remaining in expansion. In-flight connectivity and wireless provider GOGO crashes -13%. VIX 14.23.

The banks are ill. The large money center banks and the regionals are beaten. XLF -2.2%. BKX -3.8%. KRE -3.5%. C -4.5%. BAC -4.4%. KEY -3.7%. MS -3.6%. USB -2.7%. ZION -3.2%. RF -4.7%. Steel and materials stocks fell love. MT +2.7%. AKS +4%. X +4%. FCX +5%. VALE +5.8%. CLF +3.9%.

The SPX is down 13 points to 2092. The Dow is down 106 points, Nasdaq down 37 points and the RUT loses 8 points. VIX 14.30. Euro 1.1311. Dollar/yen 107.17. Pound 1.4553. USD 94.25. WTIC 48.98. Brent 49.81. Natty 2.42. Gold 1243. Silver 16.42. Copper 2.111.

US Treasury yields are; 2-year 0.79%, 5-year 1.24%, 10-year 1.71%, 30-year 2.52%. The German 10-year bund yield is 0.084% off the 0.06% low.

At 10 AM, Factory Orders are up +1.9% missing the +2.0% expected but better than the prior revised higher +1.7%. Capital goods orders are weak. ISM Non-Mfg Index is 52.9 missing the 55.5 expected by a mile and under the prior 55.7. New Orders are down. Employment is down from 53.0 to 49.7 in contraction and verifying the sick jobs report data. The USD prints a 93 handle at 93.99.

The SPX is down 15 points to 2090. The Dow is down 125 points at 17715 nestled back between the 20-day MA support at 17696 and 50-day MA resistance at 17754. The breakout or breakdown from this range is important. The Nasdaq loses 47 points to 4924. RUT -1%.

Trannies receive a flat tire with TRAN down -1.5%. Airlines, truckers and shippers are lower but railroads are holding up. XAL -0.6%. DAL -2.3%. YRCW -2.7%. JBHT -1.6%. UPS -0.8%. FDX -1.9%. UNP +0.8%. CNI +0.7%.

At 10:26 AM EST, the SPX is down 18 points, -0.9%, to 2087.

Keystone the Scribe