ADP Another Feather in Fed’s Cap

Andamento del mercato - 01/07/2015

Today’s strong ADP nonfarm employment data is further evidence of the growing pressure on the FOMC to raise interest rates in September to meet the ambitious 0.75% targeted before the end of the year. Although not necessarily the catalyst for more optimism, it raises the prospect of another strong showing for tomorrow’s nonfarm payrolls. After the 280,000 print for May, expectations are currently for 230,000 jobs gained in June. ADP at 237,000 means the whisper NFP number well within the reach of American job creation. However, the startling problem facing tomorrow’s announcement is the possibility that job cuts will be particularly virulent in offsetting recent gains, with losses mounting in the oil patch and manufacturing. On an annualized basis, layoffs rose by 42.7% according to Challenger Job Cuts data. June showed layoffs increasing over May, rising to 44,800 versus 41,000. Even though the unemployment rate is expected to fall to 5.40% tomorrow, there is a chance that layoffs will tip the scales, with the metric holding fast at 5.50%.

More disconcerting than the potential for layoffs to drag on unemployment is the softness in the manufacturing sector with today’s manufacturing PMI revised higher from the preliminary number, but nevertheless at the lowest since 2013. While the ISM number released minutes ago was more optimistic, the latest official figures show that the stronger dollar is deterring growth and encumbering broader economic expansion. The dollar seems unconcerned as evidenced by the monster upticks versus the Swiss Franc (CHF) followed by the Euro (EUR), Japanese Yen (JPY), and British Pound (GBP). Gold seems unfazed by the developments in Greece and China, instead proving more correlated with US dollar strength as the main driver of momentum. Crude oil is re-approaching 3-week lows and gold is trending back towards 1-month lows as the US dollar accelerates higher. Unless nonfarm payrolls tomorrow is a shocker, expect momentum to continue into the holiday session ahead of the Fourth of July closures.

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