Daily Markets: Equities Brace for June Jobs Report

Today’s Big Picture

Equity indices in Asia finished the day mostly lower led by the 2.0% in China’s Shanghai Composite and the 1.8% drop in Hong Kong’s Hang Seng. By comparison, Japan’s Nikkei finished the day up 0.3%, and South Korea’s Kospi was flat on the day. By mid-day trading, equity indices in Europe were modestly positive, and U.S. futures were little changed.

Before U.S. equity markets open, the June jobs report will be released. We strongly suspect the results, which will be relative to the expectations for 705k jobs, will dictate how U.S. equity markets open for trading today. Last month, 559k jobs were created. Ahead of the holiday weekend, afternoon trading volume will get increasingly thin as we approach the closing bell. Over the long weekend, we expect investors and traders to keep tabs on the Covid-19 Delta variant, which surged through Asia this week, leading some countries to tighten curbs and hasten vaccination efforts. Yesterday, with 63% of people in Europe still waiting for their first vaccine shot, the World Health Organization warned that a new wave of coronavirus cases could soon arrive in Europe. 

Programming note: With U.S. equity markets closed Monday to observe the Independence Day holiday, we’ll see you back here on Tuesday, July 6th. 

Data Download

International Economy

The Director-General of WHO Dr. Tedros Adhanom Ghebreyesus called for a global effort to vaccinate at least 10% of the population of every country by September. 

The inflation rate in South Korea rose 2.4% YoY, slowing from the prior 2.6% YoY pace, besting expectations for a decline to 2.5%.

The Producer Price Index (PPI), which is a measure of inflation, in the Eurozone rose 1.3% MoM in May, up from April’s 0.9%. On a YoY basis, PPI jumped 9.6% in May from 7.6% in April, a tick higher than the expected increase of 9.5%.

Domestic Economy

The federal budget deficit for the fiscal year 2021 will be $3 trillion, according to the Congressional Budget Office. This is roughly $130 billion less than last year's shortfall, but triple the deficit recorded in 2019, as Washington responds to the coronavirus pandemic. The CBO said this year's deficit would total 13.4% of GDP, the second largest since 1945. Separately, the CBO said GDP would increase by 7.4% by the end of 2021 

The International Monetary Fund raised its 2021 U.S. growth projection to 7.0% vs. its April forecast of +4.6% due to a strong recovery from the Covid-19 pandemic and an assumption that much of President Biden's infrastructure and social spending plans will be enacted. The IMF also raised its 2022 U.S. GDP growth forecast to 4.9%, up from its previous 3.5% April forecast.

As we have been predicting, yesterday’s ISM Manufacturing data is rolling over, indicating that the pace of economic recovery is slowing and we are past peak growth. The index came in weaker than expected at 60.6 vs. the expected decline to 61 from 61.2. More concerning is the Employment subindex of the ISM, which came in at 49.9. Anything below 50 is contraction, so this means job cuts came in the manufacturing sector during June. Markit’s Manufacturing PMI for June was also weaker than expected, falling from the highest level since at least 2007 in May.

Construction spending continues to surge in the private residential sector, while nonresidential is rolling over.

Initial jobless claims came in lower than expected at 364k from 415k. Continuing claims came in at 3.469 million, higher than expected and above last week’s numbers. 

Later today, we will get data on the Trade Balance, the Nonfarm Payroll report from the Bureau of Labor Statistics for June and Factory Orders.

Markets

Equities kicked off Q3 2021 on a positive note with the S&P 500 rising 0.5% on 4:1 positive breadth, setting yet another closing record high. Energy and utilities were the outperforms, rising over 1%. Consumer staples was the only sector to decline on the day, while both tech and real estate underperformed. The Russell 2000 served up a 0.8% gain, while the Dow Jones Industrial Average added 0.4% to end at around 34,633, marking its fourth-highest close in history, and the Nasdaq Composite underperformed with a 0.1% gain.

Stocks to Watch

Volkswagen AG (VWAGY) reported that its Q2 2021 U.S. sales rose 72% YoY to 120,520 units. Li Auto (LI) delivered 7,713 Li ONEs in June, an increase of 320.6% YoY and +78.4% MoM.

Verizon (VZ) is telling regulators it will continue supporting subsidized, low-cost wireless service for three years if it's permitted to buy TracFone (AMX).

Apollo Global Management (APO) agreed to acquire as much as a 24.9% stake in financial technology P-E firm Motive Partners, with Apollo and its affiliates also becoming limited partners in Motive managed vehicles. 

Two studies find Johnson & Johnson's (JNJ) COVID-19 vaccine is effective against the Delta variant.

Trading app Robinhood Markets (HOOD) filed for an initial public offering with plans to list on Nasdaq under the ticker symbol "HOOD."

After today’s market close, there are no companies expected to report their quarterly results. Why? Because it is Friday! Those looking to get a jump on such reports to be had in the coming days should visit Nasdaq’s earnings calendar page. 

On the Horizon

• July 6: Markit Services PMI (final), ISM Non-Manufacturing PMI, IBD/TIPP Economic Optimism
• July 7: JOLTs Job Opening Report, FOMC Minutes, API Crude Oil stocks
• July 8: Weekly jobless claims, EIA Energy stocks
• July 9: Wholesale Inventories
• July 13: Inflation, Monthly Federal Budget statement, API Crude Oil stocks
• July 14: Producer Price Index, EIA Crude Oil stocks
• July 15: Weekly jobless claims, NY Empire State Manufacturing Index, Philly Fed Manufacturing Index, Industrial Production, Import & Export Prices
• July 16: Retail Sales, Michigan Consumer Sentiment, Business Inventories, Net Capital Flows, Foreign Bond Investment
• July 19: NAHB Housing Market Index
• July 20: Building Permits, Housing Starts, API Crude Oil stocks
• July 21: EIA Energy stocks
• July 22: Weekly jobless claims, Chicago Fed National Activity Index, Existing Home Sales
• July 23: Markit Manufacturing PMI (flash), Markit Services PMI (flash)

Thought for the Day

“Far between sundown’s finish and midnight’s broken toll

We ducked inside the doorways, thunder went crashing

As majestic bells of bolts struck shadows in the sounds

Seemin' to be the chimes of freedom flashing

Flashing for the warriors whose strength is not to fight

Flashing for the refugees on the unarmed road of flight

And for each and every underdog soldier in the night

And we gazed upon the chimes of freedom flashing”

- Chimes of Freedom, Bob Dylan

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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