Solid jobs report and relentless reopening optimism drive stocks and oil higher, gold and dollar slump

The US economy continues to head in the right direction.  Financial markets are heading into a long weekend on a high note after a blockbuster jobs report showed 4.8 million jobs were created, the most since records began in 1939.  S&P futures and European stocks are rallying as the trajectory of the economic recovery remains V-shaped and as the extraordinary coronavirus uncertainty will justify the Fed’s aggressive easing stance.  Fiscal support expectations are also forcing cash that has been on the sidelines to come back into US equities.  President Trump’s signal that he wants more money for individuals affirms the belief he will try to make the economy as strong as possible before November. 

As US hospitals continue to see surges with COVID-19 cases, the June’s jobs gain will be shrugged off as the massive spike in cases across the Sunbelt (Southeast to Southwest region) will likely delay reopening momentum and stifle the strong recovery in jobs this month.

Appetite for risky assets seem to be going nowhere after a blockbuster jobs report, early vaccine trial data, the Fed’s dire outlook will continue to support easy policies, and expectations that reinstated lockdown measures will only be temporary.  The June jobs gain was almost too good and will lead many to believe that the next fiscal package might be smaller. 

Jobs

The headline better-than-expected gain garnered much of the attention, but continuing claims increased, suggesting a large part of the jobs are still not coming back.  The labor market is improving, but rising virus case counts across the Sunbelt will derail the hiring of many individuals as state reopenings stall. 

Jobs are roaring back in amusement, gambling and recreation industries, up 43.3%, while clothing stores rebounded 35.6%, and personal and arts/entertainment both saw over 30% gains.  Average hourly earnings declined, which suggests lower-paid jobs are coming back. 

Oil

Oil prices are settling above the $40 level after a strong US nonfarm payroll report suggests the US economic rebound continues and that crude demand should follow suit.  Crude prices have been supported on better-than-expected OPEC+ compliance, US crude stockpiles continue to slide, and as vaccine hopes have energy markets pricing in a better outlook for improving air travel in 2021. 

Gold

Gold prices whipped around following a strong US jobs report that exceeded many expectations.  Gold prices initially declined but that was short-lived as a large part of the labor market is still unemployed and virus uncertainty in the Sunbelt will not do any favors for new job placements in July. 

A long weekend might make it hard for gold to recapture the $1800 an ounce level again, but the fundamentals still strongly support the path of least resistance is higher.  Gold should see support stem from a weakening US dollar, expectations for more global monetary and fiscal stimulus, and Chinese retaliatory expectations following the US steps to roll back special trading privileges for Hong Kong.  A complete collapse of relations between the world’s largest two economies is not expected, but it should derail some of the exceedingly strong optimism that is for US equities.