Quiet today after the holiday; there is not much this week in terms of economic reports. Treasury will auction $61B of notes and bonds this week, 3 yrs, 10 yrs and 30 yr bond. Markets should have time to digest the June employment report that looked very good on the headlines but still not as good as the headlines would suggest. Businesses added 288K jobs in June, better than what had been expected, the unemployment rate fell to 6.1%, getting close to what some economists see as full employment. The labor participation rate didn’t change, at 62.8%, meaning about 38% of the possible employment sector have simply quit looking. The U-6 number continued to show about 24% of the work force are employed part-time but want a full time job. Overall employment is increasing but the dollars earned in many of the jobs are not enough to increase discretionary spending.
The well-worn adage that characterizes investing, “climbing a wall of worry”, is definitely alive and well in this run-up of equity market prices. The stock market continues to increase and as the indexes continue to make new highs, the worry factor seems to increase. Yet no matter the debate about wages too low, housing markets struggling, and health care costs taking away potential consumer spending; it is onward and upward for stocks. As you know, we have been one of those questioning the drive higher in stocks, but still we have stayed fully vested in stock indexes (personally). Never try to trade against the trend no matter how worrisome it is. Relax; looks like the stock market will continue to increase as long as the Fed forces investors into it. Low interest rates leave little choice other than stocks. Not throwing in the towel, just recognizing the momentary reality.
There are no normal economic reports today, and not much this week. The weekly claims on Thursday, May consumer credit tomorrow, the FOMC minutes on Wednesday and Treasury auctions is about it. At 9:30 this morning the DJIA -65, NASDAQ -11, S&P -6; 10 yr note 2.63% -1 bps. 30 yr MBS price unchanged.
Gallup US consumer spending measure declined in June; Americans' self-reports of daily spending fell back slightly in June, averaging $91 for the month. This is down slightly from a six-year high of $98 in May, but is similar to the $90 average found in June 2013. This $91 figure for June suggests a mixed bag for the economy. While it represents a much higher level of consumer spending than the $60 to $70 averages found for much of 2009 to 2012, it also represents the first decline in the monthly average since January of this year.
This Week’s Calendar:
10:00 am May JOLTS job openings report (4.4 mil frm 4.455 mil in April)
1:00 pm $27B 3 yr note auction
3:00 PM May consumer credit (+$17.5B frm +$26.8B in April)
7:00 am weekly MBA mortgage applications
1:00 pm $21B 10 yr auction (re-open frm May’s 10 yr)
2:00 pm FOMC minutes frm 6/18 meeting
8:30 weekly jobless claims (315K unch)
10:00 am May wholesale inventories (+0.6%)
1:00 pm $13B 30 yr bond auction (re-open frm May’s 30 yr bond)
2:00 pm June Treasury budget (+$86.5B frm -$130B in April)
So far this morning the bond and mortgage markets are flat with little change frm last Thursday; the 10 -1 bp at 2.63% but MBS prices unchanged. Technically, bearish; as long as the stock market is in favor it is unlikely interest rates will decline. The bellwether 10 yr is managing to hold below its 100 day average on its yield.