1) Jobs Report Delivers, and Then Some!
For the second month in a row, the monthly nonfarm payrolls report blew away expectations.
The US economy added 255,000 jobs in July, easily smashing the 180,000 consensus.
Plus, June and May’s numbers were revised higher, and average hourly earnings beat forecasts with a 0.3% gain.
With two strong months in the bag, the awful May jobs report now looks like a statistical anomaly, and traders are also quickly forgetting last Friday’s weak GDP report.
The market’s conclusion reaction was clear…
2) The Fed Is Gonna Hike. Really?
In the aftermath of the report, investors see a higher probability of a Fed rate hike this year.
Fed Funds futures now imply a 47% chance of a December rate hike, up from 37% yesterday, and just 9% post-Brexit on June 27.
Plus, all the usual hawkish trades quickly fell into place today:
Now as far as whether this report actually moves the Fed, I have my doubts. The Fed’s been sitting still for so long that I doubt a couple data points makes a huge difference at this point.
The Brexit is also still an issue. The Bank of England made a huge downgrade to its growth forecasts, and European commercial/investment banks are doing the same, which implies a good degree of fallout. This could give the Fed another reason to hold off.
But either way, the numbers had equity traders in a great mood today…
3) New Record Highs!
After the numbers hit, I said I would not count out a strong rally in stocks today. I thought it would take an upward reversal in bonds to make that happen, but that was wrong.
Unlike in last month’s post-NFP rally, bonds stayed down, as did gold.
The S&P 500 hit a new all-time record high at 2182.87, led by a big move in bank stocks, which benefit from higher interest rates. The index rose 0.9% to close right on the highs.
Regional banks were especially strong with the KRE ETF powering 3.5% higher.
Small caps and transports also posted strong gains.
The decliners’ column was led by the G.U.T.S complex that has dominated the action in 2016: Gold, Utilities, Treasuries, and Silver, all instruments that suffer from higher rates.
Crude oil was down for most of the day on the dollar's rise, but nearly squeezed into the green by day's end.
Monday’s Trading Calendar
US Economics (Time Zone: EDT)
10:00 Labor Market Conditions Index Change (Jul): prior -1.9
Mortgage Delinquencies (2Q): prior 4.77%
MBA Mortgage Foreclosures (2Q): prior 1.74%
08:30 CAD Building Permits
21:30 AUD NAB Business Confidence
21:30 CNY CPI y/y
21:30 CNY PPI y/y
Before the Open:
Dean Foods (DF)
Horizon Pharma (HZNP)
After the Close:
Arena Pharma (ARNA)
Hertz Global (HTZ)
Nuance Comm. (NUAN)