Slightly Less Than Perfect, Jobs Report Muffles Activity, Direction

After rising today following the U.S. Department of Labor’s employment report for July, the U.S. dollar weakened as afternoon trading wore on. It was a kind of Goldilocks report, not too hot, not too cold, just about right. Therefore, markets are finding it difficult to find meaning in it.

The consensus was for 223,000 jobs and July came in at 215,000. However, upward revisions to the previous months’ employment data plus a gain in average hourly earnings and hours worked were both viewed positively by market participants, and as a stronger signal the Fed could raise rates in September.

The quick turnaround from stronger to weaker for the dollar can also be attributed to the “summer weekend” effect. Traders are packing up for the Hamptons and points north, so while the longs thought they had closed out the week, some fairly assertive shorts entered the market and caught the longs napping.

The lower dollar also helped to push gold higher. The price moved very modestly, even without an assist from regular trading. However, gold is still fundamentally in the doldrums from the bullish point of view. Long term, gold will be pressured downward.

Oil, despite the minor dollar weakness, was again beaten up. West Texas is flirting shamelessly with a level below $44 per barrel while Brent North Sea, the world benchmark, is solidly below $50 a barrel and testing lower.

Oil is facing a host of problems, as is common knowledge. Add technical momentum and we’re going to be dealing with what may be a complete meltdown. Oil is hovering just above those technical flashpoints. Astoundingly, the U.S. is adding rigs even as the price plummets. Contrapuntally, could the rig-count rise be in anticipation of a price rise? Of course, oil won’t stay low forever, so perhaps the answer is yes.

U.S. equities seem to be troubled as they stagger through the end of earnings season. We think this will come to a halt next week and stocks will begin to find their own direction apart from the nitpicking that goes with the quarterly income/earnings jamboree.

American manufacturers will be facing headwinds, though, from a strong dollar. Before the retrenchment that followed a reassessment of the employment figures, the dollar had soared to record heights against the yen and Swiss franc.

Regardless, all three U.S. indices are well off their lows as the trading day and week head for the close.

Can U.S. companies recalibrate? We know Europe’s rates will be staying put for a while yet, and China likewise has no choice. These conditions might force American companies to find more efficiencies. On the other hand, they might have to wait until there is more spending money at home in the U.S. consumer sector.

Next week should be intriguing. We will see how much adjustment and realignment the markets do as the jockeying begins in anticipation of the Fed September meeting.

Wishing you as always, good trading,