- ADP report shows job weakness occurred in September
- ISM Services report shows largest part of economy remains resilient
- Yields remain near session lows
Wall Street is waking up to more FX and bond market chaos. Overnight, the 30-year Treasury yield surged to 5%, the highest level since 2007. With hedge funds aggressively riding this bond market selloff, Treasury yields blew right by ‘ridiculous’ speed and entered ‘ludicrous speed’.
Heading into the NY open, the 30-year Treasury yield has reversed course and is now trading around 4.879%. The resilience of the US economy and lack of buyers in the bond market means market swings will remain violent, especially once the DC drama intensifies. The dollar remains overbought and the bullish trend could remain intact as the current swings continue to mirror what is happening in the Treasury markets.
US stocks are higher after the bond market selloff cooled off and following softer private payrolls data. Wall Street is looking for any signs that the labor market is cooling and a big miss with the ADP report was somewhat embraced. Most however are ignoring the private payrolls release since ADP has yet to prove to be a reliable indicator as to what will happen with NFP.
The dollar pared losses and stocks held onto gains after the ISM services index showed the service sector remains strong. Service employment still looks good and service inflation could be sticky.
Ousted
The removal of US House speaker McCarthy surprised many DC insiders. Far-right Republicans voted alongside Democrats delivering a historic ouster of a speaker. The republican party is in disorder as they just tentatively lost control of the one chamber of one branch of government. The House can’t pass anything until they can agree upon a new speaker. Government shutdown odds are going up as the speaker is one of the most important roles for the upcoming debt ceiling and spending cap negotiations. In addition to being third in line to the presidency, the speaker decides which bills are brought to the floor and sets the legislative agenda.
Possible successors include:
Republican Patrick McHenry was named temporary speaker under House rules. The other Republican favorites include Steve Scalise, Tom Emmer, and Tom Cole.
Given the House speaker uncertainty will stretch out over the next couple of weeks, this is going to be a major obstacle that will make it harder in avoiding a government shutdown come mid-November.
ADP
The private sector added only 89,000 jobs in September, much lower than the 150,000 consensus estimate. The ADP report also noted that pay growth slowed for a 12th straight month as job stayers saw a 5.9% y/y pay increase. Pay gains for job changers softened from 9.7% to 9.0%. ADP’s chief economist said, “We are seeing a steepening decline in jobs this month.” Small and medium size businesses posted job gains while large establishments lost 83,000 jobs.
The US labor market is slowing, but this will need to be confirmed with Friday’s NFP report.
