When we called this out as a major go forward positive in March (post the February employment report), not many people agreed... and after the stock market's response to the better than expected unemployment rate on Friday, I have no reason to believe that consensus will agree with me right here and now.
The crowd likes holding hands. In the moment of redness, post a +40% trough-to-peak rip from the March 9th low, I understand how it may be hard to see that the US stock market may have already discounted some of this better than expected economic news. This is what it is. Markets look forward.
The June unemployment rate came in at 9.5%. That was both better than expectations of 9.6% and only a 10 basis point sequential increase versus that last nosebleed charge (+50bps sequentially) that we saw in May versus April. This, on the margin, is bullish for the US Dollar and bullish for long term interest rates. We aren't going to have the next Great Depression. Sorry storytellers.
Plenty of people still mistake good news for the US currency as good news for stocks. After markets recover from their freak-out lows, that doesn't make sense in the early part of a recessionary recovery. What's good for the economy, is bullish for interest rates and the Dollar. What's bullish for those two factors is nasty for what's been working for the last 3 months - the REFLATION trade.
In the charts below, Andrew Barber provides important historical context. My view is that in the next 6-9 months, you're going to see this chart of US unemployment rollover. No, I'm not saying it's a new bull market in employment. I am simply saying that the rate of change will rollover to down sequential monthly reports.
Keith R. McCullough
Chief Executive Officer
