RECAPPING LAST WEEK
A lackluster showing for the labor market took center stage last week—June’s 57k new jobs
number was nearly 50% below expectations, while the previous two months’ figures were revised
down by a combined 74k. Meaning that 17k fewer jobs were created over the past quarter than
had previously been estimated for April and May alone The unemployment rate ticked down .1%
from the 4.3% figure that had persisted for the last several months; while layoffs remain limited,
slowing job growth helped push the labor participation rate down to a 5–year low. Before those
jobs numbers were released, the Fed Fund Futures had indicated a 40% chance of a rate hike at
July’s meeting and 80% for September. Now, those figures have declined to 15% and 60%,
respectively, effectively removing one of the expected hikes from 2026. Keep in mind, though, that
Kevin Warsh only recently became Fed Chair, and questions remain about his process, so those
numbers may be less predictive than they were previously. Warsh’s speech on Wednesday
reinforced the 2% inflation target but removed the forward guidance that markets had come to
expect from his predecessor, an absence that will take some getting used to. The reduced risk of a
rate hike reversed the panic in U.S. Equity indices caused by last month’s report, and pulled the
VIX down around 16, near its yearly low. Magnificent 7 stocks reclaimed their market leadership,
gaining 6% as a group. Sector performance tilted towards risk as financials, communications, and
discretionary sectors led, while risk–off sectors in staples and utilities lagged. Energy fell behind as
oil prices slipped to nearly $67 per barrel. For most of the week, the dollar index held strong above
$100, until Thursday when it dropped to that important inflection point. Treasury yields ended the
week higher thanks to Warsh’s speech, while gold and silver held up at technical support levels.
Cryptocurrencies finally caught a bid with Bitcoin, Ethereum, and Solana rising 3%, 7.5%, and
12% respectively. International stocks were mixed as developed markets rose and emerging
markets lost ground.
THE WEEK AHEAD
Now that the employment report is behind us, this week’s focus will be on the health of the
broader economy and how it might impact Fed policy. FOMC meeting minutes release Wednesday,
providing further hints towards our new Chairman’s plans. Just as with Jerome Powell, Warsh’s
predecessor, the press conference after the report could be more telling than the report itself and
could yield clues about the chairman’s approach to balancing the Fed’s dual inflation/labor market
mandate in the face of new data. Any increase in the unemployment claims report on Thursday
could help confirm the weakening labor market sentiment indicated by last week’s jobs report.
Market watchers expect Monday’s U.S. PMI numbers to show continued industry expansion, and
existing home sales and consumer credit reports will arrive later in the week. Canada, where the
unemployment rate sits at an elevated 6.6%, will get a jobs update on Friday, and further
international inflation numbers from Germany, Japan, and China are scattered throughout the
week. Lastly, the ECB’s monetary policy meeting minutes will hit Thursday.
(Schwab)
