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No fireworks in the futures trade

Posted July 3, 2024 at 9:30 am
Patrick J. O’Hare

It is a slow day for corporate news, but it is a busy day in terms of economic reporting. That ball got rolling overnight with the release of final June Services PMI readings for countries in Asia and Europe. We’ll call them mixed in aggregate, but the Caixin Services PMI reading out of China got some added attention checking in at an eight-month low of 51.2.

The ISM Services PMI reading for the U.S. ( consensus 52.5%; prior 53.8%) will be released at 10:00 a.m. ET.

There isn’t a lot of conviction behind the futures trade, which is understandable given that plenty of participants have already walked through the door, or find themselves on the doorstep, of an extended holiday weekend.

The stock market closes early at 1:00 p.m. ET today for the Independence Day holiday. The Treasury market will close early at 2:00 p.m. ET. Markets will be closed on July 4 and will return to action on Friday, July 5, which will feature the June Employment Situation Report.

Currently, the S&P 500 futures are down seven points and are trading 0.1% below fair value, the Nasdaq 100 futures are down 38 points and are trading 0.2% below fair value; and the Dow Jones Industrial Average futures are down one point and are trading in-line with fair value.

The early batch of U.S. data was relatively close to expectations, so it didn’t alter the tone of the equity futures market much. The same is true for the Treasury market, although there was a slight dip in yields in a narrowly traded range.

The 2-yr note yield , at 4.77% before the data, is at 4.75% now, up one basis point from yesterday. The 10-yr note yield, at 4.43% before the data, is at 4.41% now, down three basis points from yesterday.

The pre-open releases included the following:

  • The MBA’s weekly mortgage applications index (-2.6%)
  • The ADP Employment Change Report for June showed 150,000 positions added to private-sector payrolls ( consensus 163,000), led by a 63,000 in leisure/hospitality, Gains were registered by small businesses (5,000), medium establishments (88,000), and large companies (58,000).
    • The key takeaway from the report is the recognition that both growth in private-sector payrolls and pay has slowed. Year-over-year pay gains for job stayers was 4.9%, the slowest since August 2021. Year-over-year pay gains for job changers slowed to 7.7%.
  • The trade deficit widened to $75.1 billion in May ( consensus -$76.0 billion) from an upwardly revised $74.5 billion (from -$74.6 billion) in April. That was result of export being $1.8 billion less than April exports and imports being $1.2 billion less than April imports.
    • The key takeaway from the report is that there were declines in both exports and imports, signaling that trade demand overall was softer in May.
  • Initial jobless claims for the week ending June 29 increased 4,000 to 238,000 ( consensus 235,000). Continuing jobless claims increased 26,000 to 1.858 million, hitting their highest level since November 27, 2021.
    • The key takeaway from the report is that initial jobless claims have kicked up a notch but continue to track comfortably below recession levels; however, it is apparent in continuing jobless claims that finding a new job after being laid off isn’t as easy as it used to be, which is consistent with some slowing in the labor market.

The final June S&P Global U.S. Services PMI (prior 55.3) at 9:45 a.m. ET and the Factory Orders Report for May ( consensus 0.3%; prior 0.7%) at 10:00 a.m. ET round out today’s economic reporting calendar.

That won’t necessarily round out the interest in economic activity/views. The minutes for the June 11-12 FOMC meeting will be released at 2:00 p.m. ET (i.e., after the market closes today). Probably not the best beach read, but interested parties will be looking at them to get a sense of deliberations about the possible policy path.

The latter point notwithstanding, we heard from Fed Chair Powell yesterday, who said there has been significant progress on inflation but that the Fed would like to gain more confidence that inflation is moving sustainably to the 2% target before loosening its restrictive stance, repeating a refrain heard from many other Fed officials since that June meeting. The point being is that these minutes seem unlikely to ignite some fireworks going into the July 4th holiday.

Separately, Tesla (TSLA) has been lighting things up. Its stock has soared 17% in the last two sessions and it is up another 1.8% in pre-market trading. Paramount Global (PARA), meanwhile, is up 14.9% on a Wall Street Journal report that there may be a deal after all with Skydance paying $1.75 billion for National Amusements.

Originally Posted July 3, 2024 – No fireworks in the futures trade

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