Trading with point and figure

US May 2017 Labour data: a classic example of 'soft' rather than 'weak', not a game changer for a June Fed rate hike

a) Payrolls / Establishment survey - This was a classic 'very disappointing' Payrolls report, which in truth was rather more 'so not quite as good as we thought, but not actually weak'. The real disappointment was less in the 138K vs. expected 180K for May, and far more the net 66K downward revison to Apirl and March, which leaves the 3-mth average at a rather lowly 121K. But the breakeven rate for monthly Payrolls remains at 80-100K, and given a very tight labour market, it is not surprising that employers are struggling to fill positions. For the time being, it would be very premature to suggest that labour demand is on the turn, though this report does advise some caution, especially given Temporary Help Services continues to rise (+12.5K). In other details, the very unsurprising aspect was that Retail and Wholesale payrolls were the key drag in May (-8.2K), and indeed the downward revisions to April (-14.5K) and March (-16.1K), along with Govt (May -9K, Apr/Mar net downward revision -28K). Encouragingly Professional/business services posted another solid gain of +31K vs. rev. +59K. Underlying message: look at the detail, even if that is rather not 'en vogue' in this 'algo' age.


b) Unemployment Rate / Household Report - After a run of positive Household Survey reports, this month's Unemployment Rate drop was wholly down to a big drop in the size of the Labour force (-439K), which was almost inevitable after recent outsized gains, which did not quite fit with the long-term declining demographics narrative, and much the same applies to the drop in Employment (-233K) and Unemployment (-195K). However, the Underemployment Rate again dropped to 8.4%, and it is as well to remember that this stood at 9.2% in December 2016 and 9.7% in September 2016.

c) Average Hourly Earnings / Weekly Hours- Below par as a whole both at headline at 0.1% m/m 2.5% y/y (unchanged vs. June 2.5%) and on Manufacturing Hours, though still posting gains in y/y terms. Eminently this continues to leave the Fed with plenty of room for manoeuvre, though it is definitely not a show stopper in terms of a June rate hike

d) Market reaction - Once again the biggest reaction was in the T-Bond future that ostensibly jumped for joy at the Payrolls numbers, though this looks to be more a case of short-covering than anything else. As for the US Dollar Index and S&P 500 E-mini, both saw a knee jerk reaction, but little more than that.

Markets can now turn their attention to next week, with a thin market on Monday due to the Whit Monday holiday in much of Europe, and the trifecta of the UK general election, the testimony of former FBI chief Comey in the US on Thursday, and a raft of Chinese monthly statistics.


..........................................................................

Marc Ostwald
Strategist
ADM Investor Services International
 
our 21137 held....then a rally
pullback to test our 21173 and then rally again to horizontal rez at 21220
pullback and retest
excellent results
paid for a thimbleful of Prosecco
 
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