Market 07/30: Surprising labor data causes fear as FED begins meeting

Due to a rather sudden matter, today's newsletter is missing the following news and analysis, which Steve will include in tomorrow's newsletter:

• Analysis of European GDP data

• Analysis of S&P housing price data

• Earnings reports SoFi, Paypal, Pfizer, BP

Labor market: Job openings slightly down - hiring rate sharply down in June

Job openings in June slightly down but not much volatility:

• Number of job openings in June reached 8.184 million ..., only slightly down from 8.23 million in May.

  • However, May data was revised up from previous (8.14 million).

• Job openings steady across key industry groups: but education and health care still lead

However, the labor market has normalized: workers limiting quits - businesses have achieved labor resource balance

• Job openings/unemployed workers ratio fell to 1.202 in June (lowest in 3 years) - almost back to pre-Covid levels.

  

• Quit rate maintained at 2.1 (low compared to pre-Covid) as workers increasingly tend to stick with their current jobs.

• And hiring rate (3.4) lowest since April 2020. 

=> Both data points show the labor market has cooled.

• Private sector hiring rate fell to 3.7% in June (lowest since April 2020 and equivalent to 2013-2014 trend).

  

• However, layoff rate is also at extremely low levels:

  

Hiring rate has decreased, but layoff rate also decreased

=> indicating businesses have reached labor balance (no need for much hiring or layoffs)

Hiring activity in some notable service sectors:

• FYI: Importance of the service sector in the US economy structure..

• Hiring rate sharply declined in leisure and hospitality group, but layoff rate also declined in this group:

  

• Hiring rate for the professional business services has fallen to the equivalent of the bottom in November 2023 ...

  • … is currently at the lowest level since October 2009

Conference Board: July consumer confidence mixed good and bad - previous month's data revised down again

July data increased but June revised down:

• Consumer confidence (Conference Board survey) in July increased to the level of 100.3 (> estimate: 99.7 | previous month 97.8 - revised down from 100.4)

  

• The June 2024 figure is the 8th time in the last 9 months to be revised down:

  

Mixed good and bad data: but seems more bad than good

• Confidence in the present situation (green line) has fallen to the lowest since April 2021.

• Future expectations (red line) increased slightly but still low compared to pre-Covid.

  

• Number of people who think there are many jobs in the labor market compared to number of people who think it's hard to find a job has decreased

  • => indicating a general pessimistic trend in the labor market.

  

• All plans to buy houses, cars, household appliances… have decreased.

  

• Consumers feel quite satisfied with the stock market (white line)

  • ... but not too satisfied with income growth (blue line)

  

Some other news

• Venezuelan President Nicolas Maduro said he will release the full voting records from the recent election to counter fraud allegations from the public.

  • He said there will be delays due to "attacks" on the power grid.

  

Market: SPX finds support at 5400 after fear-inducing economic data

With unexpected economic data showing the strength of the economy and confirming what was seen in the Q2 GDP report on the day the FED starts its 2-day FOMC meeting, investors in the market became fearful and continued rotating money from the tech sector to sectors less sensitive to interest rates.

Under pressure from the short-term hedge volume for FOMC that has not yet been unwound and VIX still in a fairly high range, the Nasdaq block collapsed pulling SPX close to the bottom of the 5400-5500 range that Steve mentioned in previous newsletters. Here SPX successfully defended the 5400 level, helping the market temporarily halt the panic.

However, looking further at the overall internals, today's trading session liquidity was quite weak, most of the selling pressure came from hedging activities and money rotation. Yield retreated slightly during the day indicating the bond market had little change in sentiment. Put/Call ratio also stable, overall no panic.

The bright spot of today's session is still the small caps block, generally any view of increased soft-landing probability is quite optimistic for $IWM. The only issue is that call IV continues to be quite high.

With IV generally continuing at quite high levels with important macro data and earnings reports this week, the risk of rotation days like today will continue.