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Stocks are broadly lower as selling pressure in tech increases and FED data shows less growth than anticipated.
U.S. stocks are falling Thursday morning as investors react to mounting evidence that hiring has slowed down based on a report from payroll processor ADP.
Technology companies and retailers are down, while high-dividend stocks are slipping in response to a jump in bond yields.
Global Economy – Interest rate concerns have fueled long liquidation in equities after the 10-year German bund yield soared to a 17-1/2 month high of 0.544% due to weak demand at a French debt auction of 30-year securities.
France’s 30-year debt auction saw a bid-to-cover ratio of 1.53, well below the 1.93 from a previous sale in Jan and a sign of tepid demand.
Stock losses were contained as a +1.64% gain in Aug WTI crude oil lifted energy stocks. Crude rallied after API data late Wednesday showed U.S. crude stockpiles dropped -5.5 million bbl last week.
China’s Shanghai Composite climbed to a 2-1/2 month high as Chinese property stocks rallied after the PBOC said that liquidity in the banking system is “at a relatively high level” and “ample.”
ECB Executive member Praet said “our mission is not yet accomplished” and that ECB officials need “patience and persistence” as price growth has been “exceedingly volatile” and underlying inflation pressures “remain subdued.” He added that although the economic recovery is “increasingly solid,” the outlook remains contingent on the very easy financing conditions aided by current monetary stimulus.
U.S. Economy – Slightly more Americans applied for jobless aid last week, but the number of people seeking benefits has stayed near historic lows that point to a robust job market.
Weekly applications rose by 4,000 to a seasonally adjusted 248,000, the Labor Department said Thursday. The less volatile four-week average rose 750 to 243,000.
The number of people collecting unemployment benefits has fallen 7.9 percent over the past 12 months to 1.96 million.
The job market appears to be solid as the United States enters its ninth year of recovery from the Great Recession. Applications are linked to layoffs_and employers are holding onto workers with the expectation that business will continue improving. Jobless claims have come in below 300,000 for 122 weeks in a row. That’s the longest such stretch since 1970 when the U.S. population was much smaller.
U.S. businesses added a modest 158,000 jobs in June, a survey found — a sign that hiring has decelerated but remains healthy enough to lower the unemployment rate over time.
Payroll processor ADP said Thursday that the strongest job gains were in services, such as education, health care, hotels and restaurants. Manufacturers added 6,000 jobs, but construction firms and mining companies, which include oil and gas drillers, cut 6,000.
The data echoes other figures that show hiring has slowed over the spring, with job gains averaging just 121,000 from March through May, according to government data. Most economists chalk it up to a dwindling supply of workers as the unemployment rate falls.
Analysts predict that the government’s jobs report, to be released Friday, will show 179,000 jobs were added last month.
The U.S. trade deficit narrowed in May, and the politically sensitive trade gap with China also slid.
The Commerce Department said Thursday that the U.S. deficit in the trade of goods and services fell 2.2 percent in May to a seasonally adjusted $46.5 billion.
U.S. exports rose modestly to $192 billion — the highest level since April 2015 — on rising shipments of cars and consumer goods, including cellphones. Imports fell slightly.
Market Sentiment – The long bond is finally oversold and price is making it’s way below the 50 day moving average to the downside as we expected.
I’m anticipating price to begin trading sideways in the short term and once again start reacting inverse to day to day stock market action, which is not been the case in recent weeks.
The long bond is usually negativey correlated with the stock market, but since reaching overbought price territory, we’ve seen bonds and stocks trade int he same direction.
Expect less correlation in the next few weeks and more inverse relationship between stocks and bonds as we head into August.
Stock Market Analysis – Over the past few sessions, I’m pointed out that tech and retail are the two main vulnerabilities in the market at the present time. Today, both increased selling pressure, which caused markets to slip once again.
Retail increased downside volatility, just as price began moving towards the 50 day line. I’m anticipating more corrective pressure in the short term, which will cause price to bottom out as RSI moves into the 30th level in the next few sessions.
Similarly, QQQ which tracks the top 100 tech stocks is now showing RSI levels reaching into the 30’s. Volatility is still low, which implies that we will see a bit more downside, till stocks begin bottoming out and moving above the 50 day line once again.
Don’t anticipate major upside, till fund activity moves back into the market, which is not realistic till we see some consolidation over the near term.
Expect more downside pressure from tech till we see increase in volatility in the short term. Then I’m expecting consolidation and sideways action, before stocks begin trading higher once again.
Roger Scott