August 6. Service job growth in focus going into payrolls

–Yesterday’s ADP was lower than expected at only 185k.  However, that news was overwhelmed by an extremely strong non-mfg ISM of 60.3, vs expected 56.2.  The ten year yield jumped 5.8 bps to 226.5.  Going into Friday’s employment data, odds have again shifted toward a hike in September. Yesterday’s EDU5 settle of 9960 was the lowest settle since mid-June. A Gallup index of ‘job creation’ maintained a record high reading of +32 in July for the third month in a row, which, along with Service ISM could point to strong NFP.  However, it’s interesting to note that Gallup’s other survey measures on the economy have not held their gains.
–Crude faded from its modest bounce and settled at a new low, now in the fifth Kubler Ross stage: Acceptance (of prices below $45/bbl).  The Emerging Market ETF (EEM) is also mired near the year’s low as are many commodities.  Interesting article by Wolf Richter notes that auto makers are all admitting that China’s auto market (23 million units!) has stalled at almost no growth.  http://wolfstreet.com/2015/08/05/unnerving-thing-global-automakers-said-about-chinas-economy/  Likewise electricity consumption was reportedly up only 1.3% in the first half of 2015.
–I’ve read a few things recently that suggest that the lower prices for oil and other commodities are a great boost (eventually) for economic growth.  I would agree, if it weren’t for the fact that the companies involved in many of those businesses carry debt, and the yields on that debt are going higher at the same time that end product prices decline, which can lead to bankruptcy.  I used to have a client at Bankers Trust in the late nineties who was involved full bore in tech stocks, and I was citing my concerns about rising rates, and he said “It doesn’t matter.  These companies don’t have debt, they’ve just issued shares.”  Whether due to rates or just too much supply, the end result was the Nasdaq crash.  In today’s economy, one could say it doesn’t matter what happens to commodities, we’re a SERVICE economy.  Which may well be, but problems in one sector have a way of spilling into others.
–Jobless Claims today expected 273k.  Bank of England meeting, minutes and inflation report also on tap.

Posted on August 6, 2015 at 5:23 am by alexmanzara · Permalink
In: Eurodollar Options

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