Wall Street sulks on the back of strong Nonfarm Payrolls surprise

U.S. benchmarks closed slightly lower Friday but off the lows of the session. While the jobs data indeed pulled down the chances of a rate cut as soon as this month, the economy is on the right track which is positive overall.  Equities logged weekly gains. The Dow Jones Industrial Average, DJIA, lost 43.88 points, or 0.2%, to finish at 26,922.12, the S&P 500 index declined 5.41 points, or 0.2%, to close at 2,990.41 and the Nasdaq Composite gave up 8.44 points, or 0.1%, ending at 8,161.79.

The greatly anticipated US payrolls numbers, (nonfarm Payrolls) for June showed an upside surprise of 224,000 jobs created versus the 160,000 consensus, coming in much higher than the 75 economist estimates provided to Bloomberg. The net downward revision of 11,000 was ignored. Private payrolls climbed 191,000 versus the 150,000 expected. The service sector employment climbed 154,000 and Manufacturing payrolls rose 17,000. However, there was something for everyone, as the softness in Average Hourly Earnings, rising just 0.2% month-on-month versus 0.3% expected, and annual wage growth also disappointing at 3.1% should be concerning. On the other hand, it is ahead of all the key inflation measures and real household disposable income growth is in great shape. 

Markets will now wait to see what Fed Chair Powell will say in a two-day testimony before Congress next week where he is expected to rinse and repeat that the Fed stands ready to sustain the current economic expansion while global uncertainty and subdued inflation should remain key concerns for the Fed. We will also have US  headline CPI that is expected to slow a further two tenths to 1.6% y/y in June (flat m/m), on the back of a notable decline in energy prices. "Core inflation should remain steady at 2.0% y/y, reflecting a firm 0.2% m/m advance. We pencil in a 0.2% m/m increase in core services and a flat reading in core goods, which should help buoy core CPI overall," analysts at TD Securities explained. 

DJIA levels

The chart is in consolidation, unlikely to break out to the upside until investors get a sense of where the Fed' stands on the dots and the chart's pattern is undefined on a longer-term basis. Arguably, the formation of price action built up over the past year so far could be considered to be the beginnings of a ‘bearish’ wedge formation.  Bears have the 24800 is the recent swing bottoms in sight, while on the upside, the 127.2% Fibo extension targets the 28500s on the upside