Daily Market Color

Both Stocks and Bonds Decline Ahead of June Payrolls Release

Both US stocks and Treasurys are selling off marginally as investors set up for tomorrow’s all-important payrolls release.  Pressure on oil prices off the back of renewed supply concerns in the US set the bearish tone for risk assets.  A government report showed weekly crude stockpiles fell only 2.2 million barrels, far less than the 6.7 million-barrel draw analysts were expecting.  Despite today’s sell off, oil prices remain up over 70% from the 12-year lows reached earlier this year, but supply/demand fundamentals are still out of whack.  Further exacerbating the situation, Libya’s export terminals, which have been shut since 2014, could reopen, which would restore close to 600,000 barrels per day in supply capacity.

In terms of new data releases, today’s ADP report showed US private sector companies added more workers than expected in June, led by gains in small-business jobs.  Small businesses, characterized as those with fewer than 50 employees, accounted for 95,000 of the 172,000 jobs added.  Economists were forecasting a gain of 160,000 jobs after adding 168,000 in May.  The data suggests we could see at least a moderate uptick in employment in tomorrow’s more comprehensive nonfarm payrolls report, but the ADP hasn’t historically been a reliable indicator.  A separate report showed fewer Americans filed for unemployment benefits last week.  The claims number came in at 254,000, close to the 43-year low of 248,000 reached in mid-April. 

The Dow and S&P 500 both closed down less than 0.25%, while the NASDAQ is up about the same amount.  Treasury yields and swap rates are flat to up two basis points across all major maturities, and both WTI and Brent crude are down close to 5%.

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