ON DECK FOR WEDNESDAY, OCTOBER 4
KEY POINTS:
- Bonds enjoy at least a temporary reprieve
- We’ll soon know if US ADP payrolls was just another nonfarm head fake
- US ISM-services to inform growth momentum
- US vehicle sales beat expectations
- RBNZ holds as expected
This morning is a great example of how dominant the bond market’s sensitivity to the fundamentals is at this point following a protracted sell off. Sovereign bonds are modestly rallying after a disappointing US ADP payrolls report and ahead of more US macro data this morning. Yesterday’s US rates selloff that was data-driven by JOLTS extended through the overnight session before reversing this morning. A minor assist came via a beat by US vehicle sales late yesterday that remain on an upward path amid no inventory (charts 1, 2). Sentiment is swinging from one side of the boat to the next in whippy fashion with each release and I’m still of the opinion that the risk-reward trade-offs favours tamping down this bond sell-off. Most of today’s focus will be upon another round of US data that is frankly passing the time until the week’s marquee release on Friday.
The RBNZ extended its hawkish pause as expected. Fresh explicit forward guidance will be published at its next meeting on November 28th.
US ADP private payrolls can drive market effects but the report lines up poorly with Friday’s more important nonfarm payrolls. Bear this in mind when considering the 89k reading for ADP this morning relative to the consensus estimate for a 155k rise in private nonfarm payrolls on Friday. This was not a report that was distorted by strikes since ADP counts folks on payrolls whether paid or not. There is about a one-in-five chance that ADP would come in this low relative to nonfarm which makes it statistically improbable but by no means impossible for nonfarm to come in materially stronger (chart 3).
There are few other labour market readings available so far other than low initial claims and the pick-up in ISM-mfrg employment. Tomorrow’s Challenger layoffs report will be another consideration. Yesterday’s JOLTS upside matters because of the recent history that suggests when JOLTS roll, nonfarm payrolls typically follow suit soon thereafter (chart 4).
ISM-services (10amET) will serve as a barometer of activity in the key services sector but also watch its hiring and prices signals after ISM-manufacturing improved on both of those counts yesterday. A mild slip is expected.
US factory orders (10amET) should follow the already known small rise in durables with nondurables tacked on.
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