Weakening jobs data supports future Fed rate cuts

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Published Date 7/3/2024

This morning June ADP jobs expected +161K, increased 150K, lower jobs than thought — a positive sign. Weekly jobless claims expected at 233K increased 238K +4K from the week before, continuing unemployment claims rose by 26,000 to 1,858,000 in the earlier week, the highest since November of 2021. The focus on continuing claims that continue to increase implies employment is slowing and only a slight increase in weekly claims also leans to less employment; that is what the Fed is looking for.

Yesterday Powell lauded recent economic data suggesting inflation is getting back on a downward path, the reaction dropped the 10 year note 3 bps and MBS prices ended +29 bps. The claims data adds to the outlook that a rate cut or two will likely occur later this year. Pulling against lower rates though is the huge increase in US debt. Most talk now is focused on what the Fed will do, and when, but don’t overlook the cost to fund a deficit of over $34 trillion and 2024 annual debt expected at $1.9 trillion.

May US trade deficit estimated at -$76.0B reported at -$75.1B.

Weekly MBA mortgage applications for last week; total apps declined 2.6%, purchase apps -3.3% and re-finance apps -1.5%.

At 9:30 am the DJIA opened +69, NASDAQ unchanged, S&P +5. 10 year at 9:30 am 4.41% -3 bps. FNMA 6.0 30 year coupon at 9:30 am +10 bp from yesterday’s close and +17 bps from 9:30 am yesterday; the 6.5 30 year coupon +6 bps from yesterday’s close and +14 bps from 9:30 am yesterday.

At 9:45 am the final June PMI global services sector index expected at 55.1 was 55.3; the composite at 54.8 from 54.5 in May.

At 10 am June ISM service sector index, another decline, expected at 53.0 from 53.8 in May the index fell to 48.8. The service sector in contraction, the sector has been the strong sector, the sector's third contraction in 49 months. The Business Activity Index also fell, registering 49.6, the first contraction since May 2020. New orders (47.3 versus 54.1) and employment (46.1 versus 47.1) declined. “The decrease in the composite index in June is a result of notably lower business activity, a contraction in new orders for the second time since May 2020 and continued contraction in employment. Survey respondents report that in general, business is flat or lower, and although inflation is easing, some commodities have significantly higher costs. Panelists indicate that slower supplier delivery performance is due primarily to transportation challenges, not increases in demand,” said Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management. The initial reaction sent the 10 down to 4.36%.

May factory orders -0.5% with estimates at +0.2%.

At 2 pm the FOMC minutes from the June 12th FOMC meeting.

The bond markets will close this afternoon at 2 pm, equity market trades regular hours.

Source: TBWS

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