Of all government economic reports that move markets for all asset classes, one stands out: The Non-Farm Payrolls Report that is published at the beginning every month. Today's disappointing June payroll isn't an exception to the rule, as it moved markets big time, sending bonds soaring and stocks and commodities into a tailspin. At 12.30 Eastern today, iShares Barclays 20+ Treasury Bond Fund (NYSEARCA:TLT) was up 1.20 percent, while the SPDR S&P 500 (NYSEARCA:SPY) was down 1.2 percent, the PowerShares QQQ Trust (NASDAQ:QQQ) was down1.10 percent, and Freeport-McMoRan Copper & Gold (NYSE:FCX) was down close to 2 percent. But is this just a one-day event, or a game changer that will set the tone for the next market move?
We believe it is the second, because job growth has been the missing link for the ongoing recovery. And June's payroll report confirmed that this link is still missing. Besides, the report wasn't just disappointing; it was very disappointing, across both the private and the government sectors, affecting both part-time and full-time workers. Wage, labor for participation, and unemployment numbers weren't better either. So what does it mean for bonds, stocks and commodities?
Bonds: A disappointing report is usually associated with low levels of inflation and falling yields. This is music to the ears of bondholders, as they have been concerned that yields may shoot up in the aftermath of QE2. In fact, the report raises the prospect of some sort of Q3, which could be another positive for bonds. But not all news is positive. A weak labor market makes it harder for Congress to make the necessary cuts to bring the national debt lower, limiting the supply of future bond issuing.
Stocks: As we wrote in a previous piece, a strong jobs report could be one of the four catalysts that will move equity markets above their trading ranges. Now this catalyst is off the table, and it may undermine the prospects for the other catalysts to materialize. A weak employment report, for instance, makes it harder for US corporations to keep up with profit expectations. This means that equity markets are more likely to head back towards the lower end of their six-month trading ranges rather than pierce through the upper ranges.
Commodities: A disappointing jobs report is usually associated with slower growth -- and that isn't good for commodities, especially for industrial materials. But again, there can be some good news for commodities, as a weak economy raises the prospect of Q3, trashing the dollar further and helping commodities, especially precious metals. But every policy has its limits, and monetary policy has already reached, if not passed, these limits.
Disclosure: I am long QQQ.