European stock markets pulled back and the euro jumped against the dollar after the U.S. nonfarm payrolls number disappointed, coming in at 138,000 for May vs. the expected 185,000 in a Reuters poll of analysts.
In a bad sign for the strength of the U.S. economy, the April figure was revised downward as well, to 174,000 jobs created from 211,000 previously reported. March's already weak 79,000 jobs were revised downwards to 50,000.
The FTSE 100 was trading at 7,555.68, still up some 0.16% on the day but well below the fresh record high of 7,599 it had hit in early morning trading in London. The euro spiked by around 0.4% to the U.S. dollar after the data was released.
Societe Generale strategist Albert Edwards -- known for his bearish take on markets -- recently noted that the last time volatility in the U.S. bond market was at such low levels as today, 10-year Treasury yields spiked some 150 basis points (1.5 percentage points) in four months.
That was during the "taper tantrum" of 2013, when fears of an end to the Federal Reserve's bond-buying program were running high. Confidence is much higher now, and markets seem incredibly resilient to a lot of shocks, from political ones to not-so-good data.
One reason for this confidence seems to be the better-than-expected earnings season that just ended. The other seems to be the fact that people still believe President Donald Trump can deliver on his promises of "massive," as he once called then, tax cuts.
But Edwards believes "the reflation trade is Donald Trump-inspired fake news," as he put it in his weekly strategy note.
On the earnings front, while acknowledging the fact that they increased in the first quarter, he looked deeper at first-quarter corporate profits as reported in the National Income and Product Accounts (NIPA) last week.
While NIPA post-tax profits rose by a healthy 12% in the first quarter, they do show "one major blemish on the seemingly rosy profits outlook," Edwards said.
The 12% headline growth relies on a 24% year-on-year surge in net U.S. overseas profits and a 12% increase in financial sector profits. These "have disguised the fact that domestic non-financial economic profits are really struggling badly and are still down 6% year-on-year," he pointed out.
A surge in U.S. unit labor costs is what is driving this decline in domestic non-financial economic profits, in Edwards' opinion. "This does not offer a sound footing for a recovery for U.S. domestic business investment -- indeed quite the reverse," he said.
Today's jobs data could be adding to investors' pessimism about the outlook for the U.S. economy. One thing is certain: Business investment is very important for economic growth, and it still seems to be lagging. The jobs data confirm that trend.