Nonfarm payrolls rose to 224,000 in June, the highest since January, thus popping the bond market consensus that the Federal Reserve would turn ultra-dovish at the July FOMC. Average hourly earnings are up 3.1% on an annual basis, another nail in the coffin for the “three Fed Funds rate cuts in 2019” argument implied by the Chicago futures exchanges. The payroll//wage growth data demonstrated that the US economic supertanker slowed but hit no iceberg in the second quarter of 2019.

There is now zero probability for a 50 basis point rate cut at the July FOMC and even 25 basis points is iffy at a time when the three month average job growth is still 174,000. Guess what? The Powell Fed has delivered on its monetary policy/dual mandate holy grail, full employment (3.7% in June) and price stability (core CPI 2%) in the tenth year of the Obama/Trump economic recovery cycle. Chairman Powell could do a high five with members of the Senate Banking Committee at his Humphrey Hawkins testimony next week. If so, expect another bond market panic attack, akin to the one after the June job data, when the yield on the ten year US Treasury note surged from 1.9% to 2.05%.

Wall Street is dead set on a rate cut at the July FOMC – what if Powell denies them this monetary lollipop? If so, all bets are off – and I would expect the S&P 500 index to drop 200 points if no Fed rate cut coincides with mediocre corporate earnings/margins and guidance. After all, corporate America generates 45% of the S&P 500 index’s profits from abroad – and global economies accelerated a synchronized slump in 2019.