Investors focus on economic data and look past trade tariffs – for the time being

Friday’s constructive equity market performance was triggered primarily by a significantly stronger-than-expected June Employment Report. Non-farm payrolls came in at +213K versus Econoday consensus that was calling for +190K. May’s employment gains were also revised higher from an already strong +233K to +244K. Importantly, the Labor Force Participation Rate in June’s report ticked higher as well, from 62.7% to 62.9%. The official unemployment rate rose to 4.0% from 3.8%, due in large part to an increase in the size of the labor force for the month (+601K). The broader U-6 unemployment rate ticked higher as well, from 7.6% to 7.8%. A year ago it stood at 8.5%.

In something of a counter-intuitive result for May, international trade figures released on Friday reflect a slight improvement. April’s monthly results were -$46.1B (revised), while June’s results were -$43.1B. Given the increasingly deafening din of trade war and tariffs, and the potential impact of them on the US economy and workforce, even a modest improvement in the monthly trade ledger is noteworthy. Additionally, and possibly even more significantly, manufacturing payrolls rose again––dramatically in June. May’s manufacturing payrolls were raised from 18K to 19K. June’s manufacturing payroll totals were 36K––more than double the Econoday consensus of 15K for the month.

Last Friday’s economic data-driven trade higher managed to put a positive patina on what was otherwise a rather unimpressive week for equity investors. That tone could serve investors well this week as we launch into Q2 earnings season. Much of what investors will be looking for out of this earnings season will be released on Friday by the financial services/banking verticals of the economy. Citigroup (C), First Republic Bank (FRC), JP Morgan Chase & Co. (JPM), PNC Financial Services Group (PNC), and Wells Fargo & Co. report results on Friday. We also receive Q2 results from Pepsi (PEP) on Tuesday.

Q2 earnings aside, the economic calendar for the week ahead will be interesting. Consumer Credit for May, released Monday, is likely to reflect further expansion, and as a natural by-product, new evidence of solid consumer confidence and sentiment. On Friday we will receive the University of Michigan’s Consumer Survey which gauges precisely that: Consumer Sentiment. The NFIB Small Business Optimism Index reading for June is due out Tuesday morning and is expected to remain at multi-year highs. Econoday consensus is 106.

The Atlanta Fed Business Inflation expectations results, due out Wednesday morning, are expected to remain in-channel, with last month’s reading of 2.1%. The weekly EIA Petroleum Status Report, due out Wednesday, will undoubtedly be pivotal for both equity and energy market investors. Last week’s results were tame. With crude inventories ticking higher (+1.2M bbl.), gasoline inventories slipped fractionally (-1.5M bbl.) and distillates were flat. Any build in inventories would be a welcome relief for those hoping for a pullback in prices.

Inflation and the role it has on interest rates has garnered its well-deserved share of attention in recent months.

With crude prices trading at multi-year highs, and with the economy operating at an optimal level by most measures, this week’s CPI reading for June will be noteworthy. Econoday is expecting no significant deviation from the previous month’s report. Consensus CPI M/M is 0.2%, Y/Y 2.9%, Less food & energy M/M 0.2%, Y/y 2.2%. In short, well contained.

Flickr photo:  Derell Licht

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