Stimulus Bill and July Jobs Report

It’s jobs week  so that will once again be the focus of the market and it’s been a while since the employment report held the potential to truly shift market expectations. But with the rise in Covid-19 cases and the stalling reopening efforts, the July jobs numbers will return the report to its rightful place of relevance.  Expectations are for a 1.5 million increase in jobs, but the wide range of estimates creates some additional uncertainty with some shops forecasting a negative print. So stay tuned for that one, it could be a wild ride. We tend to think, however, that an upside surprise won’t impact the market given the continued resurgence of the virus in the latter half of July. A weak print, however, could lead to a Treasury rally as the thinking is the labor market deteriorated even more after the survey week, which is the second week of the month. Also, with the Senate dithering over renewing expiring stimulus benefits consumer confidence could be headed for a fall if the delay lingers, and that will only play into a Treasury rally as well. In addition to the jobs report we get July ISM readings that should show positive expansion in both the manufacturing and services sector.

Treasury Curve Today Week Change
3 Month 0.09% -0.01%
6 Month 0.09% -0.04%
1 Year 0.10% -0.03%
2 Year 0.11% -0.03%
3 Year 0.12% -0.04%
5 Year 0.22% -0.05%
10 Year 0.56% -0.02%
30 Year 1.25% +0.03%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.25%
6 Mo LIBOR 0.31%
12 Mo LIBOR 0.45%
Swap Rates
3 Year 0.186%
5 Year 0.267%
10 Year 0.555%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Aug 3 ISM Manufacturing Jul 53.6 53.6 52.6
Aug 4 Factory Orders Jun 5.0% 5.0% 8.0%
Aug 5 Trade Balance Jun -$50.3b -$50.3b -$54.6b
Aug 5 ISM Services Index Jul 55.0 55.0 57.1
Aug 6 Initial Jobless Claims Aug 1 1.414mm 1.414mm 1.434mm
Aug 7 Change in Nonfarm Payrolls Jul 1.520mm 1.500mm 4.800mm
Aug 7 Unemployment Rate Jul 10.5% 10.5% 11.1%
Aug 7 Average Hourly Earnings (YoY) Jul 4.2% 4.2% 5.0%
Aug 7 Underemployment Rate Jul NA NA 18.0%

calendar icon Top 5 Events for the Week

August 3 — 7, 2020

1.  Stimulus Bill and Virus Counts — All Week
2.  July Employment Report — Friday
3.  July ISM Readings — Monday/Wednesday
4.  Initial Jobless Claims — Thursday
5.  June Factory Orders — Tuesday


1.  Stimulus Bill and Virus Developments — All Week

While the Senate  is likely to pass some form of extension, or renewal, of expiring benefits the package will be less than what was in the first round of the CARES Act. In addition, once the Senate passes what is reportedly a $1 trillion bill, it will have to be reconciled with the House’s already passed $3.5 trillion package. That will take time and benefits have for the most part already expired. While the market assumes some form of stimulus bill will be passed, the longer it takes  the more consumer confidence is likely to take a hit and that could undermine  spending in August. Also, virus cases continue to grow with a shift upward in cases in the northeast again, off-setting some declines in the Sunbelt states. As long as the virus remains a concern expect more drawn-out reopenings and hesitancy on the part of consumers. All that spells a Treasury market that could challenge a break of the low yield range that has held since early March.


2.  July Employment Report — Friday

The July Employment Report and will be the first one in several months that has the real potential to influence trading in the days after. A beat of expectations, however, is likely to be less impactful to the market (given continued growth in virus case counts and the delayed stimulus bill), while a weak reading could put some juice in a renewed Treasury rally. The current consensus expectation is for 1.5 million new jobs which would be impressive  but well off last month’s record-breaking 4.8 million. Also, given the estimates range from a high of 4.0 million jobs gained to a loss of 500 thousand there is a wide error band such that the actual figure could easily surprise, but as mentioned there is more potential for a bond rally on a miss than there is to a sell-off from a beat of expectations.


3.  July ISM Readings — Monday/Wednesday

In addition to the jobs report on Friday we’ll get the ISM Manufacturing Index this morning and the Services index on Wednesday. Both are expected to indicate that the rebound in that began in May is carrying through the summer. The manufacturing index is expected to  print a 53.5 versus 52.6 in June.  The services index is expected to slip a bit from 57.1 in June to 55.0 in July, but still in decent expansionary territory.


ISM Manufacturing and Services


4.  Initial Jobless Claims — Thursday

The weekly change in initial jobless claims continues to be the best real-time indicator of how the economy is recovering.  The Bloomberg consensus expects jobless claims for the week ended August 1 to be 1.415 million, down slightly from 1.434 million the previous week.  But claims have stalled around the 1.3mm to 1.5mm range for the past two months and that will eventually feed back into a flattening in job growth.


5.  June Factory Orders — Tuesday

Factory orders are another measure of the rebound in the manufacturing sector, and the report is expected to show the bounce in May continued into June. Expectations are for orders to increase 5.0% versus an 8.0% pop in May. So, much like many of the other reports, the bounce that started in May continued into June but with a little less vigor.



bar graph icon  Yield Universe

Yield/Duration Relationship

Tags: Published: 08/03/20 by Thomas R. Fitzgerald