Summary:
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US indices look to recover
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Boost comes from trade headlines
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Bad ADP miss ahead of ISM Services PMI (3PM)
There’s been an attempt at a recovery in equities in recent trade following a couple of down days for US benchmarks to start the week. The catalyst behind both the declines and the subsequent bounce comes from a familiar source, with trade developments still very much in the driving seat. The gains this morning came after a Bloomberg report that despite the heated rhetoric the US and China are getting closer to a deal and the US500 is now trading a little over 30 handles above Tuesday’s low.
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The bounce in the US500 has paused around the 38.2-41.4% fib retracement, with the 3109 level seen as a potential line in the sand to keep an eye on during the forthcoming session. Source: xStation
It’s a pretty big week for US data with the ISM manufacturing PMI miss on Monday contributing to the sell-off in stocks and in the past hour there’s been a further warning sign from the world’s largest economy after the release of some private payroll data. The ADP employment change fell to 67k from 121k prior (revised down by 4k), well below the consensus forecast of 137k. This is the worst reading since the June release, and if you ignore that aberration then you have to go all the way back to June 2011 to find a worse number.
The ADP employment change of +67k was the 3rd worst reading in the past 9 years and sends a potential warning sign ahead of Friday’s NFPs. Source: xStation
Looking at the breakdown of jobs, 85k were added in the service sector but 18k loss in goods producing roles and this suggests that the manufacturing sector continues to struggle. The data comes before the final non-farm payrolls release of 2019 on Friday and if this perceived softness in the labour market is confirmed then the markets will start to ramp up bets that the recent cuts to the Fed funds rate aren’t simply a mid-cycle adjustment.
This afternoon we’ll have another top tier US data point with the ISM non-manufacturing (services) PMI due out at 3PM GMT. While the manufacturing equivalent for November showed a 4th consecutive sub 50 print, indicative of the index being in contractionary territory, the services read is expected to show continued relative strength with the consensus forecast calling for 54.5 after 54.7 prior.
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