Not as strong as previously thought

Thoughts of the Day

Although the US Non-Farm Payrolls data showed that +206,000 jobs were created in June, slightly above the +190,000 expected, the jobs market is not as strong as previously thought. The total number of jobs created in April and May were revised lower by 111,000. The average monthly jobs added this year is so far +222K, compared to the +251K in 2023 and the +377K in 2022. The Unemployment Rate surprised the market and rose to 4.1% (expected and previous 4.0%), the highest level since Nov 2021.


With the jobs market slowing down to levels that are similar to conditions that prevailed prior to the pandemic, the reasons for the US Federal Reserve to start considering interest rate cuts are growing stronger. If inflation data (Consumer Price Index and Producer Price Index) that will be released later this week should confirm that inflation continues to drop towards their 2% target, expect more probability on interest rate cuts this year to grow, and risk sentiment to improve further.

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Tradertainment

Bed rotting days are ‘very tempting,’ but don’t really help you feel rested


Millennials and Gen Zers are taking advantage of their off-days and weekends by “bed rotting” — a trend that involves spending the entire day under the comfort of their duvets while sleeping in, watching television or mindlessly scrolling a device.

It’s meant to be their way of decompressing or staving off burnout after a long work week, but the trend could be doing more harm than good, according to Samantha Boardman, a psychiatrist and clinical instructor at Weill-Cornell Medical College and author of the book “Everyday Vitality, Turning Stress Into Strength.”

Bed rotting could potentially disrupt your circadian rhythm, your body’s natural alarm clock that tells you when to sleep and wake, Boardman says. If you’ve ever had a rot day, or just slept in longer than normal, it may have left you feeling groggy and less refreshed or made it harder to fall asleep at a reasonable time at night.

When you’re sleeping too much, binge watching a new series or getting lost in social media, you aren’t engaging in true rest, Boardman says. You’re merely distracting yourself from whatever problem is at hand, be it exhaustion from work, a stressful problem or an unhealthy lifestyle.

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Week Ahead

Monday: –

Tuesday:

  • Federal Reserve Chair Powell is due to testify about the Semi-Annual Monetary Policy Report before the Senate Banking Committee.
  • Treasury Secretary Janet Yellen is due to testify on the state of the international financial system before the House Financial Services Committee.

Wednesday: 

  • The Chinese Consumer Price Index is expected to show that prices rose +0.4% Year-on-Year in June, slightly higher than +0.3% in May.
  • The Reserve Bank of New Zealand is expected to keep interest rates at 5.5% in its monetary policy meeting.
  • Federal Reserve Chair Powell is due to testify about the Semi-Annual Monetary Policy Report before the Senate Banking Committee.

Thursday: 

  • The US Consumer Price Index is expected to show that prices rose +3.1% Year-on-Year in June, lower than +3.3% in May. The core rate is expected to remain at +3.4%.

Friday:

  • The US Producer Price Index is expected to remain at +2.2% YoY in June. The core rate is expected to rise slightly to +2.5% from +2.3%.
  • Preliminary Data for the US Michigan Consumer Survey will be released.
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What Happened Yesterday

Market Movements as of New York Close 5 Jul 24 (7 Jul for Crypto)
  • The Nonfarm Payrolls showed that the US economy added +206K jobs (vs +190K expected) in June 2024, slightly below May’s revised 218K. Data for May was revised sharply lower from an initial +272K and the April reading was also revised down by +57K to +108K. The unemployment rate rose to 4.1%, the highest since November 2021, surpassing expectations of 4%. The labour force participation rate increased to 62.6%. Average hourly earnings grew by +3.9% year-over-year, the smallest gain since June 2021, and increased by +0.3% month-over-month (vs +0.4% expected). Despite the increase in the number of jobs created in June, the revisions of previous months’ data are pointing towards a slowdown in the US labour market, causing the US yields to fall on the day.
  • The US stock market opened slightly higher from Wednesday. The S&P 500 and Nasdaq rose through most of the New York session. Hence, the S&P 500 closed +0.54% higher on the day (high: +0.60%, low: -0.10%) while the Nasdaq increased +1.02% (high: +1.09%, low: +0.07%). The S&P 500 and Nasdaq closed at all time highs. The Dow Jones had an active trading session and rose +0.17% on the day (high: +0.23%, low: -0.35%).
  • The crypto market continues to trade weak with Bitcoin down -2.08% and Ether down -4.18% despite an attempt to climb higher (Bitcoin: 58,538, Ether: 3,080) after the release of the NFP data.
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Headlines & Market Impact

Former ASML CEO says US-China chip fight will continue

Notable Snippet: The recently retired CEO of semiconductor equipment maker ASML said in an interview with Dutch radio station BNR on Saturday that U.S.-China disputes over computer chips are ideological and not based on facts, and they are set to continue.

Wennink left in April after a ten year term at the helm of ASML that saw it become Europe’s largest technology firm. Since 2018, the U.S. has imposed increasing restrictions on what tools the company can export to China, its second-largest market after Taiwan, citing security concerns. Most recently the U.S. has sought to keep the company from servicing equipment already sold to Chinese customers.

“These kinds of discussions are not being conducted on the basis of facts or content or numbers or data but on the basis of ideology,” Wennink said.

“You can think whatever you want about that, but we’re a business where the interests of your stakeholders have to be managed in balance … If ideology cuts straight through that, I have problems with that.”

He said the company has had customers and staff in China for 30 years “so you also have obligations”.

As part of seeking to strike a balance, Wennink said he had lobbied where possible to prevent export restrictions from becoming too tight, and at the same time he had complained to high-ranking Chinese politicians when he felt the company’s intellectual property wasn’t being respected.

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US inflation easing, job market similar to pre-pandemic conditions, Fed report says

Notable Snippet: Inflation is easing and the job market has returned to the “tight but not overheated” situation seen before the COVID-19 pandemic threw the U.S. economy into disarray, the Federal Reserve said on Friday in a report to Congress that documented the steady emergence of more normal conditions in the aftermath of the health crisis.

“Inflation eased notably last year and has shown modest further progress so far this year,” the Fed said in its latest Monetary Policy Report to Congress, noting that in the key area of housing services it is likely just a matter of time before the pace of price increases settles back to where it was before the health crisis.

The job market, meanwhile, “continued to rebalance over the first half of this year,” the report noted. “Labour demand has eased, as job openings have declined in many sectors of the economy, and labour supply has continued to increase, supported by a strong pace of immigration.”
“The balance between labour demand and supply appears similar to that in the period immediately before the pandemic, when the labour market was relatively tight but not overheated. Nominal wage growth continued to slow,” the report said.

Job growth has been slowing, and the unemployment rate has risen steadily from 3.5% last July to 4.1% as of June. Inflation remains around 2.6% by the Fed’s preferred Personal Consumption Expenditures Price index, still regarded as “elevated” by policymakers but edging towards a point where that may no longer be the case.

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Japan real wages fall for record 26th straight month as inflation bites

Notable Snippet: Japan’s inflation-adjusted real wages fell in May for a record 26th straight month, highlighting the pain of inflation that is dampening household spending and complicating the central bank’s efforts to normalise monetary policy.

Real wages fell 1.4% in May, government data showed on Monday, faster than April’s 1.2% decline, as a weakening yen and higher commodity prices pushed up the cost of imports.

But there were some bright spots in the data.

Base pay, or regular pay, rose 2.5% year-on-year in May, the best pace since January 1993, around the time when Japan’s asset bubble burst.

The rise reflects the hefty increases agreed by labour and management at annual labour negotiations.

This year, Japanese firms have offered a 5.1% increase in monthly pay, a level unseen in 33 years.

Nominal wages, the average total cash earnings per worker, grew 1.9% to 297,151 yen ($1,850), accelerating from the previous month’s 1.6% and at the highest pace in 11 months.

In Japan, seven out of 10 workers are employed by small firms, which are struggling to pass on rising costs to their clients.

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Sentiment

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord