The Market Today

ADP Beats Expectations Projecting 692k Private Payrolls Added in June


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

ADP Beats Expectations Projecting 692k Private Payrolls Added in June: ADP reported 692k private payrolls added in June, recovering 10% of the remaining lost payrolls (6.8 million) according to the ADP data.  The result was better than the expected recovery of 600k.  May’s tally was revised down from 978k to 886k, putting it closer in-line with the BLS’s report (+ 559k). The June data showed the goods-producing sector recovering 96k jobs (540k remain lost) and the service sector recovering 624k payrolls (6.3 million remain lost).  The leisure and hospitality sector recovered 332k private payrolls but is still missing 2.8 million jobs.  Given the recent divergence between the monthly results shown in the ADP and BLS reports (the two reports have diverged by an average of 430k per month over the past four months), very little weight will be put on the ADP report’s accuracy in projecting Friday’s more important BLS report.

More Housing Data Shows Weaker Trend: Mortgage applications for the week ending June 25 fell 6.9% as purchase apps dropped 4.8% and refi apps fell 8.2%.  Since January’s average levels, purchase apps are now down 25% while refis are down 37%.   The average 30-year mortgage rate rose 2 bps to 3.20%, and is now up 35 bps from its December low.  May’s Pending Home Sales report is expected to show another 1.0% drop (9:00 a.m. CT).  While there is some seasonality that appears to be skewing the early-2021 home sales figures, the pending sales index is down near 15% through April.

Fedspeak: Speaking today from the Fed are Atlanta’s Bostic (7:00 a.m. CT) and Richmond’s Barkin (12:00 noon.)  Both have spoken recently and appear willing to consider tapering in 2021 and raising rates in 2022 if activity progresses as-expected.


24 HOURS OF MARKET ACTIVITY

Wall Street was incredibly quiet on Tuesday as the Dow and S&P 500 both ended nearly on top of Monday’s closing levels and Treasury yields inched marginally lower. Technology names within the S&P 500, which account for more than a quarter of the overall index, rose 0.7% to offset declines in eight of the remaining 10 sectors. Consumer discretionary stocks also rose, despite weakness in leisure-related names, while bank shares declined, notwithstanding Monday’s announcements of dividend increases at many of the largest institutions. Almost undeservingly, the S&P 500’s imperceptible 0.03% gain awarded the index its fourth consecutive record close. The Nasdaq’s more convincing 0.2% gain notched the tech-heavy index its fifth all-time high close in six sessions. While it may have helped equities sustain their record run, the 16-month high for consumer confidence (more below) had no noticeable or lasting impact on Treasury yields. The 2-year, 5-year, and 10-year yields all fell around 0.5 bps on the day.

Global equities moved in divergent directions overnight prior to the release of ADP’s update on private-sector payroll growth, on pace to bring a solid quarter to a quiet close. Mixed moves for major Asian indices netted to a nearly unchanged session for a continent-wide index, leaving the MSCI Asia-Pacific Index up more than 2.4% for the second quarter. Chinese stocks were in the group that gained Wednesday, despite the official composite PMI pulling back from 54.2 to 52.9 in June. The Services index dipped more than expected, from 55.2 to 53.5, while the manufacturing PMI held up better than estimated, down 0.1 to 50.9. Europe’s Stoxx 600 had slipped 0.5% midway through the day, on pace for a 5.8% quarterly gain. Annual headline and core inflation in the Eurozone eased 0.1% in June, to 0.9% and 1.9%, respectively. Prior to the release of the private jobs data, U.S. equity index futures were down by less than 0.1% and Treasury yields, consistent with the broader global trend, were flattening lower. The 2-year yield was 0.6 bps lower to 0.25% as the 10-year yield dropped 1.5 bps to 1.45%. Those markets looked little different following the ADP release.


NOTEWORTHY NEWS

Conference Board Shows Consumer Confidence Continues to Claw Back Pandemic Drop: The Conference Board’s consumer confidence report for June was notably stronger than expected on details that were generally firmer across the board. The headline confidence index rose from 120.0, revised up from 117.2, to 127.3, topping expectations of 119.0. June’s result marked the highest level in 16 months and one more in line with pre-pandemic trends. The two key underlying indices, one tracking present assessments and the other monitoring future expectations, both rose by similarly-sized strong amounts to some of their best readings of the pandemic era. Among the broadly firmer details was the strongest net assessment of employment opportunities since 2000, another piece of evidence supporting the argument that labor demand remains healthy.

Fed Presidents See Hiring Picking Up in Months Ahead: Minneapolis Fed President Kashkari said the Fed takes its inflation mandate seriously, before brushing off the idea that stronger current inflation will persist. The economy remains in a “deep hole” and “I don’t want to cut this recovery off prematurely.” He added, “I’m anticipating a very strong labor-market recovery in the fall. …The economy is positioned for a very strong recovery but we need to make sure that everybody who wants a job is able to find a job.” Richmond Fed President Barkin agreed with Kashkari’s outlook for employment, saying, “I am one of those people who believes there are temporary factors that are holding [the labor market] back. I don’t believe we’re done at this point. …I really do think, expect and hope that when we get to August and September we’re going to see really good numbers.”

Fed Governor Waller Wants to Taper MBS First: Fed Governor Waller, the most recent appointee confirmed to the Federal Reserve Board, said he is “very optimistic” about the U.S. economic outlook. “This year has been a surprise,” he said, noting “None of us back in December would have thought the economy would be where it is right now. Given the way the economy has progressed, I think everybody anticipates tapering could move up earlier than when they originally thought.” On a more detailed note, “the housing market is on fire. They don’t need any other unnecessary support,” and so “I am much more sympathetic to tapering MBS first.” Waller, wouldn’t identify the placement of his dot in June’s plot but did note that he didn’t adjust it from March, the first meeting at which he submitted projections.


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