US stocks rallied after a disappointing jobs report affirmed the Fed’s dovish stance since the economy is nowhere near close to showing substantial progress in the labor market.
Today’s nonfarm payroll report confirms the belief that the US economy is a long way from recovering all the jobs lost during COVID-19. Before the April report, expectations were high that the economy would have a handful of months posting one million jobs created, with the US recovering the majority of the remaining 8 million job deficit by the end of the year. The May nonfarm payroll report showed that the economy is still far from showing substantial progress with the labor market recovery.
The May jobs report showed 559,000 jobs were created, lower than the 800,000 whisper number (675,000 was the consensus estimate), while the April report was revised higher by 12,000 to 278,000 jobs. The unemployment rate improved more than expected to 5.8%, but part of that can be attributed to a drop in the participation rate.
Labor market hiring remains modest at best and this should support a complete labor market recovery for the Fed at some point between the end of 2022 and early 2023. The Fed regional surveys are showing the supply problem for employers is not getting any better and that will ultimately lead to wage pressures. Now that half of the states have signaled they will eliminate the federal unemployment benefits, expectations will be high for June’s job report to be strong.
Oil
Crude prices are still hovering this week’s highs as dollar weakness returned after a modest miss with the US nonfarm payroll report. Energy markets are locked in on Iran nuclear talks that should pick up next week. The fifth round of negotiations will heat up next week and that should keep oil prices supported as Tehran will stick to their red lines for restoring the nuclear deal.
The crude demand outlook remains robust over the next couple of months because of reopenings in Europe and as Americans enjoy a normal summer. The supply side remains a big question mark and that won’t get answered until OPEC+ knows what will happen with Iranian output.
Energy traders will remain very bullish for crude prices in the short-term. Whether you focus on OPEC+ output strategy, US production, declining stockpiles, demand prospects, backwardation structures, and a falling dollar, they all currently support higher oil prices.
Bitcoin
Elon Musk has done it again. A dark tweet that implied a breakup with Bitcoin sent prices tumbling last night. Frustration was quickly voiced across social media from traders who are betting big on the world’s top cryptocurrency. It has been all downhill for Bitcoin since Musk’s SNL appearance and while the retail community is showing they are giving up on Bitcoin, Corporate America is taking a good hard look. Bitcoin appears set to continue to consolidate here between the $30,000 and $40,000 range. Prior to Musk’s tweet, the other top cryptocurrencies were consolidating, but now it is red across the board.
Gold
The move in real yields crushed gold prices for most of the week. A strong lead up of robust data had gold on the ropes, but the May nonfarm payroll report showed markets that the April report was not a fluke. Job’s day reminded Wall Street that the Fed is justified with their ultra-accommodative stance and that a pickup in taper chatter will likely wait until the end of summer at Jackson Hole.
Gold popped following the disappointing employment report. Much of the bearish positioning before the nonfarm miss should be undone as the Fed will be seen nowhere ready to talk about tapering.
