Markets Shrug At Nonfarm Payroll Data

Friday, August 3, 2018, 10:30 AM, EST

  • NASDAQ Composite +0.02% Dow +0.19% S&P 500 +0.16% Russell 2000 -0.16%
  • NASDAQ Advancers: 916 Decliners: 1156
  • Today’s Volume (First Hour) -4.8%

The markets opened fractionally higher this morning and the S&P-500 looks set to close higher for a fifth week. Nonfarm payroll data was good and consistent with a strong economy, but not all that exciting. There are more headlines on the trade war with China lobbing their response to Trumps threat to hike tariffs even higher, but again at this point nothing is set in stone. Equities seemed to like the Chinese central bank support for the Yuan (see below). S&P 500 industry sectors are mixed with Consumer Staples leading (+1.59%), Utilities (+0.41) and REITS (+0.29%) leading with Industrials (-0.50%) and HealthCare (-0.22%) seeing some profit-taking. The dollar is up 0.1% while the Chinese Yuan firms, treasuries are a little higher and crude oil is off 0.4%.

  • After falling about 0.45% overnight and nearly touching 7 per dollar, the Chinese Yuan has since strengthened after the PBOC stepped in with support. The bank imposed a 20% reserve requirement on financial institutions, effectively increasing the cost of shorting the currency. China has more leeway than the US in using its currency to offset Trump’s tariffs, but at the same time a move below the 7 per dollar mark could lead to a freefall. In the meantime Trump’s trade war continued escalating with China announcing $60 billion in tariffs on imports from the US.
  • July Nonfarm payrolls missed expectations but June’s data was revised higher, and taken together reflect a healthy employment market. Employers added 157k positions in July, below the 193k expected and less that June’s revised 248k. It’s a similar situation with private payrolls, but manufacturing payroll exceeded the consensus. The national unemployment rate fell to 3.9% from 4%, and hourly earnings early came in as expected at +0.3% although June was revised lower by 0.1%.
  • China announced a list of $60 billion worth of U. S. Imports it plans to apply tariffs on should the Trump administration follow through with their latest trade rhetoric. Beijing plans to impose tariffs ranging from 5% to 25% on over 5000 different kinds of American imports if the U.S. delivers on its proposal to tax another $200 billion of Chinese goods

Technical Take:

The July payroll data came in modestly below forecasts however it was offset by a nearly identical upward revision to the prior month’s figure. Nevertheless there was a modest “risk-off” reaction whereby yields and equity futures experienced a modest retracement. Fittingly the defensive staples sector is today’s top performing group with a gain of 0.9%. Staples had previously been this years worst performing sector and with a YTD decline of (12.7%) through the first five months of the year. However we noted back on the final trading session in May Staples Trying to Turn the Corner that the sector was showing signs of stabilizing along key support as downside momentum was already extended and thus look poised for a rebound. Over the next two months in June and July the staples ETF (XLP) gained 3.8% and 4%, and through today has clawed back more than 9%. From here the XLP has another 3% to go before reaching its next key resistance at the $56 level which is a pivot high form July 2016. The below long term monthly period chart shows a robust multi-year uptrend originating from the depths of 2009 but has spent much of the last two years in a large sideways consolidation. The question remains whether this is a large topping process, or merely a lengthy continuation pattern working off the steep uptrend of prior years. The key range is $50 - $56.

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Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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