Morning Minutes 9/6/2019

Morning Minutes

Investors React to Strong Canada Jobs and Weak US Nonfarm Payrolls

September 6, 2019
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

US stock markets are heading for a positive open today but enthusiasm has faded a big in the wake of a disappointing nonfarm payrolls report. Dow futures are currently up about 80 points or 0.3% but had been up about 120 points earlier this morning.

US nonfarm payrolls grew by only 130K in August short of the 158K street estimate, while July job growth was revised down to 159K from 164K. Average hourly earnings, on the other hand, grew 3.2% over year, slightly more than the 3.1% street estimate.

Later today, Fed Chair Powell is speaking. It will be interesting to see if this week’s mixed US economic reports, which included better than expected ADP payrolls and factory orders, offset by weaker than expected nonfarm payrolls, manufacturing PMI, trade deficit and construction spending, has any impact on his tone or the outlook for this month’s Fed meeting.

In his last speech, Chair Powell tried to talk up the US economy while leaving the door open for another rate cut if needed to deal with the impact of trade uncertainty (Bank of Canada Governor Poloz struck the same tone earlier this week). Speaking of Canada, this country added 81K jobs last month, a big turnaround from the 24K July job loss and well above the 15K street estimate, indicating a robust Canadian economy and confirming that the that the Bank of Canada’s decision not to cut rates earlier this week was the correct call as Canada’s strong economy doesn’t currently need monetary support.

Investors have been speculating another rate cut could be coming soon, but several FOMC members have indicated opposition to additional rate cuts due to the negative message that stimulative action could send about the economy. China markets have been rallying overnight with the after the People’s Bank of China cut bank reserve requirements by 50 to 100 basis points, giving its banks firepower to increase lending but in this case it has been widely recognized and priced into stock markets that China’s economy has been struggling under the weight of US tariffs and in need of stimulus to avert a recession.

Lululemon is up 4.3% in premarket action this morning after the athletic apparel producer and retailer beat the street on earnings (adjusted EPS $0.96 vs street $0.89) and same store sales (15.0% vs street 12.2%). Overall sales were up 22% over year, driven by a 35% increase in the sales of clothing for men. Management raised its EPS guidance for the current fiscal year to $4.63-$4.70 from $4.51-$4.58.

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