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05Aug2016 Market Update: Wall Street Trading At New Highs, Crude Prices Steady, Risk On, But Investors Might Be In For A Nasty Surprise

Written by Gary

The Spooze made a new record high as employment rose more than expected for the second month in a row in July and wages picked up, bolstering expectations of faster economic growth and raising the probability of a Fed interest rate increase this year. Both gold and the US dollar fell sharply while Texas Tea remained at the 41 handle. Short-term very bullish, longer term not so much.

Here is the current market situation from CNN Money

North and South American markets are mixed today. The S&P 500 is up 0.76% while the IPC gains 0.19%. The Bovespa is off 0.24%.

What Is Moving the Markets

Here are the headlines moving the markets.

Strong U.S. employment report brightens economic outlook

WASHINGTON (Reuters) - U.S. employment rose more than expected for the second month in a row in July and wages picked up, bolstering expectations of faster economic growth and raising the probability of a Federal Reserve interest rate increase this year.

Strong jobs data catapults S&P to record high

(Reuters) - U.S. stocks surged on Friday, with the S&P 500 touching a record intraday high after a second straight month of robust labor market data brightened the economic outlook.

U.S. trade deficit rises to ten-month high in June

WASHINGTON, Aug 5 (Reuters) - The U.S. trade deficit rose to a 10-month high in June as rising domestic demand and higher oil prices boosted the import bill while the lagging effects of a strong dollar continued to hamper export growth.

Growth snapshots ahead in world awash with cheap money

LONDON (Reuters) - Bumper July jobs data from the United States have again begun to stoke expectations of a September rate hike from the Federal Reserve, just when other major central banks around the globe are unleashing ever-looser policy.

Citigroup beats $800 million appeal by onetime billionaire

NEW YORK (Reuters) - A federal appeals court rejected a one-time Florida billionaire's bid to revive his $800 million lawsuit accusing Citigroup Inc of fraudulently hiding its exposure to subprime and other toxic mortgages, inducing him to hold on to shares he otherwise would have sold.

Consumer Reports urges higher Volkswagen U.S. diesel owner compensation

WASHINGTON (Reuters) - Influential U.S. magazine Consumer Reports urged the Justice Department to hike compensation to 475,000 owners of polluting Volkswagen diesel vehicles and allow owners who opt for a fix to reconsider.

AstraZeneca hits 2014 Pfizer bid price, helped by Bristol's woes

LONDON (Reuters) - AstraZeneca shares hit a record high on Friday, breaching for the first time the 55 pounds a share level offered by Pfizer in 2014 during the U.S. group's abortive $100 billion attempt to buy the drugmaker.

American Airlines reaches interim deal to hike ground staff wages

(Reuters) - American Airlines Group Inc said it had reached an interim agreement with a labor union to raise wages for about 30,000 of its ground staff, effective immediately.

Oil down 1 percent as dollar jumps on U.S. jobs data

NEW YORK (Reuters) - Oil prices fell 1 percent on Friday, ending a two-day rally fueled by short-covering and bargain-hunting, as the dollar surged on robust U.S. jobs data and reasserted its influence over crude futures in an oversupplied market.

Since 2014 The US Has Added Half A Million Waiters & Bartenders And No Manufacturing Workers: Here's Why

As part of our monthly tradition showing the gaping disparity in the quality of the US labor market, we present the breakdown between the lowest paid jobs available, those for workers in "food services and drinking places", also known as waiters and bartenders, and compare them to the number of workers in the traditionally best paid sector, manufacturing.

Here is the bottom line: as the chart below shows, there have been half a million waiter and bartender jobs added since 2014, and no manufacturing jobs.

This explains why contrary to the BLS's seasonally adjusted models optimistically showing a pick up in wage growth, the US economy has so far failed to observe any form of benign demand-pull inflation.

So what accounts for this troubling deteriorationg in the US labor market continue every single month? Here is one explanation.

Back in January, the ECRI's Lakshman Achuthan's made a troubling observation. The sustained decline in the official jobless rate - now near the Fed's estimate of "full employment" - is a misleading indicator of labor market health, he said.

Indeed, the stagnation in nominal wage growth is consistent with the weakness in the employment/population (E/P) ratio. After dropping to three-decade lows in the wake of the Great Recession, the E/P ratio has barely improved since the fall of 2013, reversing only a quarter of its decline from its pre-recession highs. Furthermore - as a breakdown of the E/P ratio by education level shows - even this modest imp ...

"Jobs Data Nowhere As Strong As Headline" - Analysts Throw Up On Today's Seasonal Adjustment

One week ago, the BEA admitted that it had "found a problem" when it comes to calculating GDP numbers. Specifically it blamed "residual seasonality" adjustments for giving historical GDP numbers a persistent optimistic bias. This came in the aftermath of last week's shocking Q2 GDP report which printed at 1.2%, less than half of Wall Street's consensus.

Today, seasonality made another appearance, this time however in the much anticipated July jobs number, which unlike the woeful Q2 GDP number, was the opposite, coming in far higher than expected. In fact it was higher than the top Wall Street estimate.

And, just like in the case of GDP, it appears that seasonal adjustments were the culprit for today's blowout headline print which excluding the Arima X 13 contribution to the headline number, would have been notably weaker.

As Mitsubishi UFJ strategist John Herrmann wrote in a note shortly after the report, the "jobs headline overstates" strength of payrolls. He adds that the unadjusted data show a "middling report" that's "nowhere as strong as the headline" and adds that private payrolls unadjusted +85k in July vs seasonally adjusted +217k.

In Herrmann's view, the government applied a "very benign seasonal adjustment factor upon private payrolls to transform a soft private payroll gain into a strong gain."

He did not provide a reason why the government would do that.

Courtesy of Southbay Research, which also blasted today's seasonal adjustment factor, this is how the seasonal adjustments look lik ...

How Bristol-Myers Survives a Failure

Bristol-Myers's stock stumble after a surprise clinical trial failure and the collapse of Valeant's shares show there's no avoiding risks in drug development.

Why Jobs Won't Jolt the Fed

The U.S. economy is getting closer to full employment, but the Federal Reserve may be willing to let it run hot.

How the New iPhone Could Quash Wireless Price Hikes

U.S. wireless carriers are talking about raising prices. But the expected launch of Apple's new iPhone could distract them from their discipline.

29 July 2016: ECRI's WLI Growth Index Continues To Improve

ECRI's WLI Growth Index which forecasts economic growth six months forward was improved and remains in positive territory for the 19th week - after spending the previous 35 consecutive weeks in negative territory. ECRI's inflation index is now at at 97 month high.

Market Snapshot: S&P 500 touches intraday all-time high after strong jobs report

U.S. stocks catapult higher Friday, pushing the S&P 500 toward a record intraday high after a stellar jobs report outstrips Wall Street expectations.

Capitol Report: Hillary Clinton's bid for the White House may get a boost from the jobs report

Positive news on the hiring front can help Hillary Clinton win the presidency in November by blunting Republican criticism of the Obama White House's economic policies.

The Balance: Can a summer of fun make your child lose his smarts? Not if you do it right

Does a summer of fun make your child lose his edge? Not if you do it right.

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