Chinese stocks selloff and the US Job Report

While Europe is still mostly focused on Greece and the pivotal referendum taking place on this Sunday, which will ask Greek people to express their opinions on the bailout’s conditions imposed by the country creditors, in Asia, Chinese stocks continued their decline, adding losses to the selloff started last month. The Shanghai Composite Index closed 5.8% down, after dropping as much as 7.2% throughout the trading session and only partially recovering towards the end of the trading day. Chinese stocks, which recorded an impressive streak of gains over the first 5 months of the year, have plunged over the past four weeks, recording a decline of over 29% since June 12th. The China’s mainland stock exchange, once considered the place to go to make a quick buck by trading equities, has come back to bite retail investors by entering into bear territory and putting a strain on the many that took out unusually large margin loans to finance their equity trades. However, the losses of many may indeed prove to be the gain of a few: while retails investors are running through the door hoping to save what they can, some large institutional bargain investors seem to be actually going back into the Chinese equity market, taking advantage of the selloff by opening long positions closed to their 52 week trading averages.

On the other side of the Pacific, US markets focused their attention on the latest jobs report released yesterday before the opening of trading hours. The Non-Farm Payroll data displayed that the world’s largest economy added a healthy 223,000 new jobs in June, pushing unemployed down to 5.3%, a step away from the full employment range indicated by the FED and the lowest level on record since July 2008. Notwithstanding the positive number, the report did also highlight a persistent slack in the US labor market, revising down the very positive data recoded in April and May by as much as 60,000 jobs, while also indicating an unexpected drop in the participation rate, which was the main driver for the decline in June’s unemployment. While the labor force continues its positive trend toward full employment, it appears that, at least in June, the unemployment rate decreased for the wrong reasons, pushed down by the number of discouraged workers that stopped looking for a job all together, rather than by the addition of real new jobs. Moreover, wage growth, a key indicator monitored by the FED in its discussion over its first interest rate hike, halted its uptrend recorded in April and May, coming in flat in June. After looking into the overall mixed jobs data, some analysts have already pointed out that, there is a consistent improvement in the US labor market, however the slack within the country’s work force, so often mentioned by the FED over the past few policy meetings, is still playing a major role, and perhaps Yellen was right to postpone the anticipated interest rate hike forward.

With a mixed jobs report from US, whose stock markets are closed today for the Independence Day, and the ongoing developments over Greece in Europe, markets are expected to be somewhat uneventful today, with most investors siting on the side lines digesting economic data and awaiting for the culmination of the week’s events in the Greece’s referendum vote over the weekend.