The highly anticipated July nonfarm payrolls report was a huge disappointment. Job losses were double what the market was expecting. Stocks immediately spiked lower on the news. The U.S. dollar plunged and money rushed back into the safety of U.S. treasuries. Most of the major U.S. stock market indices are down more than -1.35% with the market experiencing a very widespread sell-off. The only sectors currently in positive territory are gold miners (the HMO healthcare index was positive but recently turned negative).

Foreign markets were mixed. Asian markets were mostly positive but they were closed before the U.S. jobs data was released. The Japanese NIKKEI closed down -0.12% but that follows Thursday's big bounce. The Hong Kong Hang Seng rose +0.59% and the Chinese Shanghai index rallied +1.44%. In Europe there were a handful of economic reports released but it was the U.S. jobs data that sent stocks lower. Banks and mining stocks led the sell-off.

Germany, the EU's largest economy, saw industrial production grow +0.6%. That was under the +0.7% forecast but still up +10.9% from a year ago. This is a big drop from May's reading of +2.9%. Yesterday we saw stronger than expected factory orders in Germany. The country is due to release their preliminary Q2 GDP report on August 13th. France is the EU's second largest economy and the French budget ministry said the country's deficit shrank from 82.4 billion euros a year ago to 61.7 billion euros in June. Meanwhile in Italy, one of the PIIGS countries that investors worry might see a debt default, there was some good news as the country reported a +0.4% GDP growth in the second quarter. Compared to a year ago Italy's Q2 GDP rose +1.1%. At the closing bell the French CAC-40 lost -1.28%. The German DAX fell -1.17%. The English FTSE inched down -0.6%.

The main story today is the July jobs report for the U.S. As you know economists were expecting the headline jobs number to show a loss of -65,000 jobs but they were looking for +90,000 in private sector job growth. Unfortunately the Commerce Department said overall job growth was -131,000 jobs, twice as bad as expected. Private sector jobs came in under expectations at +71,000. The unemployment rate remained steady at 9.5%. Adding insult to injury the government revised June's numbers lower with private sector June job growth falling from +83,000 to +31,000. Total revisions for June and May showed -97,000 fewer jobs created than previously expected.

Why were July's jobs number so bad? Analysts were expecting the federal government to eliminate about 160,000 temporary census workers but they only cut 143,000. It looks like the main culprit was a huge reduction in state and local government jobs. Looking deeper into the report the services sector added +38,000 jobs. Manufacturing added +36,000 compared to +13,000 in June. There was bad news for the temporary job services, which dropped -5,600 from June's +11,200. Normally a rise in temporary job services is a positive sign for future job growth. Seeing this industry turn negative is worrisome. Offsetting these negatives was a +0.2% increase in average hourly earnings (about 4 cents) to $22.59 an hour. The average work week rose from 34.1 hours to 34.2 hours, which was better than expected.

The census may be over but the federal government still has about 200,000 temporary workers on its payrolls. As these positions expire they will continue to depress the monthly jobs statistics. The Brookings Institution, a non-profit think tank in Washington D.C., ran some interesting numbers on the jobs situation. Looking back at the last ten years, the best year saw an average job creation of +208,000 jobs a month. (Quick side note: the economy needs +125,000 jobs a month just to stay even with population growth.) If we use the +208,000 a month figure it would take the U.S. economy 11.5 years to hit pre-recession employment levels. If the economy really heats up and we see +321,000 jobs a month it would still take almost five years to reach pre-recession levels.

Overall the report was a huge disappointment and reaffirms Wall Street's fears that the U.S. recovery is struggling. There is still plenty of disagreement on whether or not we'll see a double dip recession or just an extended slow spot in the recovery but the economic data over the last few months leaves no doubt that business activity is slowing down. I am surprised that the stock market isn't showing more weakness. There is speculation that this report does have a silver lining since it could spark the Federal Reserve to act more aggressively to spur economic growth. The next FOMC meeting is August 10th.

Speaking of the Federal Reserve, Bill Gross believes the Fed will not raise interest rates for the next two or even three years because the economy is so fragile. Bill Gross runs the world's largest bond fund (PIMCO) and in an interview with Bloomberg this morning Bill shared his opinion that the U.S. could see long-term unemployment settle at a new normal of 7%. Gross has been extremely successful with his bond funds and the bond market rallied again today. The bearish jobs report sparked another rush of money into U.S. treasuries, which pushed the yield on the two-year note temporarily under the 0.5% rate for the first time in history. The yield on the 10-year note fell to 2.83%. Over the last 20 years the average spread between the 2-yr and 10-yr bonds has been 1.11% but currently it's near 2.33%. The record was last February at 2.94%. Weakness in the dollar is a contributing factor and the dollar plunged to new relative lows this morning. Normally a weaker dollar is bullish for commodities but the oil and copper were down on demand worries. Crude oil is trading down about -1% near $81.20 a barrel. Copper prices are down -0.27% while gold futures are up almost $10 to $1,209.20 an ounce.

The market is still reacting to earnings news. Some of the bigger names reporting all released earnings last night. Kraft Foods (KFT), EOG Resources (EOG), Harman Intl. (HAR), and Activision Blizzard (ATVI) were making headlines. KFT delivered a profit 8 cents better than expected with earnings of 60 cents a share but revenues came in at $12.25 billion, under expectations at $12.33 billion. EOG, an oil company, missed estimates by 7 cents with a profit of 18 cents a share. Revenues surged almost +58% to $1.36 billion, which bested estimates of $1.24 billion. HAR reported earnings of 30 cents a share, which missed estimates by 2 cents. Revenues beat the street but traders were selling the news. ATVI beat the street by a penny with a profit of 6 cents a share but revenues missed estimates and the company guided lower. KFT is up 2% at $30.26. EOG is down -4.3% at $98.00 near its 200-dma. HAR is down -13.6% near $29.20. ATVI is off -6.9% near $11.00.

In other news AIG, the insurance titan now majority owned by the U.S. government, said they were in talks to pay back the New York Federal Reserve and completely repay all the taxpayer funds used to bailout the company. The stock is up +2.7% near $41.00. Down in the Gulf of Mexico oil giant BP is getting closer to finally sealing the leaking Macondo well. BP began their "static kill" operation on Tuesday and this morning they just poured more cement around the top of the well head. Once the cement dries the next step is to finish drilling the last 100 feet of the relief well and finally seal off the well with more mud and cement. Shares of BP are up +0.8% today and up about +52% off its June lows.

Chart of the S&P 500:

Chart of the NASDAQ:

Chart of the Russell 2000 index:

Chart of the U.S. dollar ETF (UUP):

Chart of the 10-year U.S. bond yield: