U.S. markets fell on Friday on a disappointing June non-farm payrolls report. The S&P 500 fell 12.90 points or 0.94% to 1,354.68. The Dow dropped 124.20 points or 0.96% to 12,772.47. For the week,
the S&P 500 fell 0.6%, while the
Dow dropped 0.8%.
U.S. June Non-Farm Payroll
Disappoints
Friday's US jobs report showed a gain
of only 80,000 non-farm jobs in June, which was lower than the
100,000 that the market expected. The unemployment rate remained
unchanged at 8.2%. In addition, it was the third consecutive month
in which the increase in jobs was less than 100,000. In the second
quarter, job growth averaged 75,000 per month, which was far weaker
than the 226,000 per month growth in the first quarter. It was also
the worst job growth for a second quarter in two years.
Federal Reserve Not Expected to
Launch QE3 Imminently
Despite the weak June jobs report, and
the weak job growth in the second quarter, most analysts believe that
the numbers are not weak enough for the Federal Reserve to
immediately launch QE3. Thus, they expect the Fed to continue with
its $287 billion extension of Operation Twist.
Three Central Banks Take Action
On Thursday, China's central bank
lowered its interest rate by 0.25%, while the ECB lowered its
interest rate by 0.25%, resulting in a rate of 0.75%. In addition,
the Bank of England increased the size of its quantitative easing
program by £50 billion, resulting in a size of £375 billion. The
action by the three central banks was to boost their respective
slowing economies. The action by the ECB followed a June PMI reading
of 45.1 for the euro zone, which was lower than the 50 mark that
indicates contraction.
Spanish Bond Yields Remain
Unsustainable
Before the three central banks took
action, Spain held a bond auction in which its 10-year bonds were
auctioned at 6.43%, which was higher than the 6.044% at the last
auction. As a result, the yield on 10-year Spanish bonds rose to
6.842%. On Friday morning, following the action by the central
banks, the yield on 10-year Spanish bonds remained elevated, at
6.78%.
US ISM Data Indicates Contraction in
Manufacturing
On Monday, the ISM reported that its
manufacturing index fell to 49.7% in June from 53.5% in May. It was
lower than the 52.3% that the market expected. With a reading below
50%, it indicated that the US manufacturing sector is contracting for
the first time since 2009.
Looking Ahead to Next Week
Earnings season begins next week, with
earnings from Alcoa and JP Morgan. Investors will be paying
attention to the size of JP Morgan's trading loss. Investors will
also focus on the Fed's meeting minutes, which will be released on
Wednesday, to see if there is any indication of a QE3. In addition,
investors will watch China's GDP numbers, which economists expect to
show a growth of 7.6%.
