Bond Yields Break To New Lows On Weak Jobs Data

The market is lower in early trading on the heels of a weaker than expected jobs report. The nonfarm payrolls report showed the economy shed 131,000 jobs in July, more than the 87,000 forecast by economists. The private sector added 71,000 jobs, but this too was below expectations. The unemployment rate held steady at 9.5%.

On the plus side, I would say, is the reaction by the stock market so far. The S&P 500 could have easily traded down through its 200-day support level near 1115. But those levels held once again, and stocks have bounced off of their early lows and are now down about half of what they were at the open.

On the negative side is the reaction by the bond market. I have been watching that 2.90% level in the 10-year yield, and today that level gave way easily. Bond yields are now down to 2.85%, which marks the lowest level since April 2009. So on the face, the bond market continues to signal a significant economic slowdown. Although it is hard to tell how much of this action has been exacerbated by a flight to safety trade into Treasuries.

The only sector that is higher so far is the materials sector, led by the continuing rally in agriculture stocks in response to rising wheat prices. Energy and financials are down the most so far, both down -0.80%.

The dollar is lower while the euro is spiking higher again. This is having a mixed effect on commodities. Oil prices are down to $81, while gold is rallying back above $1200 to $1207 currently.

Asian markets were mostly higher overnight, led by China (+1.4%) after its banking committee said that the stress tests will not be done on banks, but risk control measures will be taken.

Trading comment: I guess I spent too much time writing this post, because the market just turned lower and is now testing that SPX 1115 level where the 200-day average currently resides. I think this is an important near-term test for the market. If it closes below that level, it probably means the market will spend a bit more time consolidating recent gains. But if we hold it, I think it could spark some short-covering and keep the offense on the field (support the bulls). Let's see how the day unfolds.

long FXI, MOO