Market 07/05: Labor market deteriorates, recession looms

Labor report (NFP): Job and wage growth slows - unemployment highest in 3 years

June data better than expected, but prior 2 months revised down sharply:

• Nonfarm payrolls (NFP) for June increase +206,000 jobs (expected +190,000 | previous +218,000).

• However, data for 4/5 previous months revised down.

  • …April and May job growth revised down -111,000.

→ Labor market slowdown reinforces rate cut expectations.

• Meanwhile, household survey also records increase +116,000, after sharp decline -408,000 last month — however the increase still lower than NFP.

• Birth/Death Model data halves jobs over past year compared to payroll data.

Full-time jobs (full-time) decline — offset by part-time jobs (part-time):

• Over past 12 months, full-time jobs decline -1.55 million jobs, while part-time jobs increase +1.8 million

• Compared to previous month, part-time jobs increase +50,000, while full-time jobs continue to decline -28,000.

Government continues to “subsidize” jobs for labor market in June:

• Nearly 1/3 of jobs created by government.

  • …of which 1/3 of the rest in health care (also controlled by government).

• Specific growth by sector:

Unemployment rate rises to 4.1%: Fed will have to take note!

• Unemployment rate (U3) for June rises to 4.1%.

• Unemployment rate (U6) also rises to 7.4%.

The U6 rate includes discouraged workers who have stopped looking for work and part-time workers seeking full-time employment.

• Long-term unemployment rate (> 27 weeks) rises sharply.

• Long-term job losers (permanent job) and temporary layoff workers are trending down.

• Labor force participation rate for prime-age workers (25-54 years) reaches 83.7% - the highest level since February 2002.

Wage growth continues to slow: but still at a high enough level to prolong inflation further

• Average hourly earnings continue in a downward trend, reaching +3.9% YoY (estimate: +3.9% | previous: +4.1%) - the lowest increase in 3 years.

Market reaction:

• The probability of a September rate cut has risen above 75%.

Japan: BOJ unlikely to raise rates in July due to weak economic data

• Japan's consumer spending data falls -1.8% y/y in May 2024 - a much larger decline than forecast +0.1% y/y.

  • Consumer demand in Japan remains low despite average wage growth this year of +5.1% y/y (Reuter).

    

• On the stock market: predicted to see a large sell-off > $7 billion as ETFs sell stocks to pay dividends (Nikkei).

  

Given this situation, BOJ may not be able to raise rates in July!

Crypto market: Bitcoin plunges after Mt. Gox sell-off pressure — German government joins BTC sell-off wave

1. Mt. Gox officially announces repayment of BTC and BCH to users, pushing market sentiment negative: $680 million liquidated.

• German government sells off Bitcoin — as BTC nominal OI loses $7 billion.

• Bitcoin drops sharply to ~54,000 USD - lowest in 4 months.

• Many positions “long” reversed the most since the FTX collapse.

Some other news:

1. UK Election: Labour Party wins landslide victory, ending 14-year dominance of the Conservative Party.

2. People's Bank of China (PBOC) prepares to sell large-scale government bonds to major banks.

3. Meta threads hits 175 million users milestone right before the 1-year anniversary.