Hi YXI friends,
Every Monday, we will focus on the market context in our briefings, covering macro, rates, equity indices, Mag-7s, crypto, and precious metals. We will track our systematic portfolio names here too.
On Wednesdays, I will deliver a lighter version of this briefing (today’s note runs 3000 words). I will focus on the key indices and portfolio names and any movements in the ratings where warranted.
On Tuesdays and Thursdays, I will deliver the deep-dive notes focusing on our systematic portfolio companies. For this week’s deep dive, I will be covering ANET tomorrow. For the second name, I would look at either PANW or SNOW. CSCO reports earnings on Wednesday, but I would put out the note next Tuesday instead, to give us time to get all the right data & observe the day-1 reaction.
DISCLAIMER: This newsletter is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.
July Nonfarm Payrolls
Well, that was a big downside surprise.
July’s Nonfarm Payrolls undershot the +87k consensus by nearly 100k, to a net loss of 23k jobs. At the same time, the June report showed a downward revision from +57k to just +20k.
The net result is that the Nonfarm Payrolls were net flat in June and July, showing a stagnant labour market.
Nonfarm Payrolls
July was the first red month since February, although the labour market had already shown a slowing trend going into the data.
The Fed likely 1) shrugs it off as it’s just “one bad month”, and 2) probably feels relieved having an excuse to do more pausing than hiking this year.
Employment Changes by Industry
In July, the largest job outflows were concentrated in the Government and Leisure & Hospitality sectors. In my video on Friday (pre-NFP release), I highlighted the distinct likelihood that the Leisure sector would disappoint after the World Cup. Therefore, this came at no surprise.
Unemployment Rate (%)
The unemployment rate actually declined from 4.2% to 4.1%, due to a lower Participation rate. “Unemployment” is measured as a function of those who seek jobs vs who can actually land jobs. If fewer people seek jobs while the same number of people land jobs, the “rate / percentage” of employed people goes up (meaning unemployment goes down).
Feel fooled? I’ve seen much worse in statistics.
Average Hourly Earnings (YoY, %)
Average hourly earnings continue to decline. This signals that the labour market is no longer as tight as before, as demand for labour drops. Human capital is being paid at near-inflation rates rather than at a premium above them. This seems to be a trend and may get worse as large companies reduce their headcount in the name of AI.
On the flip side, lower hourly earnings growth tends to lead to lower Core Inflation, which helps keep interest rates lower.