🔴US100 defends key support ahead of ADP

• Consensus shows a reading of 155k against the previous reading of 177k
• The ADP report beat consensus in 8 of the last 12 readings
• Jobless claims continued to fall, JOLTS fell higher, the employment sub-index for the ISM industrial returns above 50 points

Do we have a correlation between ADP and NFP?

In the last few years, we were unlikely to be able to say that ADP is a good forecast for the NFP report. There were really big differences, especially in June and July. The August reading, on the other hand, agreed almost 100%. It is also worth remembering that the ADP report only shows the private sector. In NFP, on the other hand, we also have government employment, so when comparing the two reports, it is worth considering private NFP. On the other hand, government employment often accounts for a large part of the change in total employment.

The private NFP report came out for August almost in line with the ADP report. Source: Bloomberg Finance LP, XTB

ADP has typically performed better than expectations

Over the past 12 months, the ADP report has performed better than consensus on eight occasions. One disappointment was the previous reading for August, when the consensus was for a reading of 195,000. However, there is now ample basis for a notably better reading:

• Jobless claims again fell close to 200k, which also limits the potential for an increase in the unemployment rate
• The employment sub-index of the ISM index for manufacturing rebounds to 51.2 points - the highest since June. The index previously stood at 48.5 points
• JOLTS, or new vacancies, rose to 9.6 million from the previous level of 8.8 million. JOLTS referred to August, but it is a leading indicator for employment change. On the other hand, JOLTS does not take into account the recent strikes in the auto sector.
• The Fed recently revised its expectations for the unemployment rate indicating 3.8% at the end of the year versus the previous rate of 4.1%

JOLTS suggests that job growth may continue. Source: Bloomberg Finance LP, XT

The current unemployment rate stands at 3.8%, which is what the Fed expects at the end of the year. Its recent rise was due to an increase in the participation rate, not more new jobless claims. Looking at new claims for jobless claims, these fell quite sharply close to 200,000 showing clear strength in the US labour market. Source: Bloomberg Finance LP, XTB

How will the market react?

At the moment, we are seeing a very high degree of tension in the market due to the powerful rise in yields. It can be considered that we now have something of a spiral in the debt market - the government needs more funds, among other things, to pay interest, which is high by yields, resulting in a greater supply of bonds, which in turn forces yields higher. A strong labour market is desirable from an economic perspective, but at the same time it could provide a chance for another Fed hike. And at present, only the Fed would be able to counter the rise in yields (by ending hikes or completing balance sheet normalisation). A strong labour market should provide further chances for the dollar to rise and possible further declines in index based futures contracts. However, it cannot be ruled out that good data will also be used by investors to realise gains on recent falls on indices or a rise in the dollar.

US100 defends the key support level before ADP report. Theoretically, a positive data surprise could lead to a breakout attempt on the US100. Then the next support would be around 14300 points. On the other hand, the target for a possible move higher would be the 14780-14800 points range. Source: xStation5