The Market Today

Markets Rebound; ADP Report Projects 291k January Payrolls


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Another Strong Labor Market Report: ADP’s January employment report showed a 291k gain in private payrolls, well above the expected growth of 157k and the strongest monthly gain since 2015.  The strength was broad-based across sectors with very few exceptions.  Particularly strong were the construction (+47k) and leisure/hospitality (+96k) sectors.  According to Moody’s chief economist Mark Zandi, “Mild winter weather provided a significant boost to the January employment gain.”  Moody’s now produces the ADP reports. While the weather may have distorted the strength of payroll gains in January, the underlying strength remains the most notable story.

Trade Balance Shrinks in 2019 for First Time in Six Years:  The December trade balance reversed some of the November decline in the trade deficit.  The monthly deficit increased $5.2 billion as imports fell 2.7% while exports increased 0.8% on very volatile underlying data.  For the year, the trade deficit shrunk to $617 billion, down 1.7% from $628 billion in 2018 and the first annual decline in six years.

Service Sector PMIs: At 9:00 a.m. CT, the ISM non-manufacturing index is expected to inch up from 55.0 to 55.1.  Just before the report, the Markit services and composite PMIs are scheduled at 8:45 a.m.


YESTERDAY’S TRADING

Global Stocks Surged: Reflecting sanguine expectations about probable economic fallout from the coronavirus, U.S. stocks joined a global rally Tuesday that sent the S&P 500 to its biggest gain since August and within 1% of its all-time high. Despite an another jump in total cases, stocks in Asia had earlier gained 1.2% while Europe’s Stoxx 600 surged 1.6%. The S&P 500 edged back from its largest intraday gain of 1.8% to notch a still-impressive 1.5% improvement, the largest since August 8. Ten of its 11 sectors strengthened with tech companies leading the way. The sector’s outperformance pushed the Nasdaq up more than 2.1% to a new record. China’s PBOC pumped significant liquidity into the markets for a second day as a show of force that it will not hesitate to support the economy in the weeks ahead.

Yields Shot Higher Amid Improving Sentiment: The global bond market broke higher as risk appetite improved, with Treasurys leading the rise in yields. The 2-year yield closed up 5.6 bps at 1.41% while the 10-year yield added 7.2 bps to 1.60%. Most of the move occurred overnight, with only modest additions made during U.S. trading. Earlier, 10-year yields in Germany and the U.K. rose 4.3 bps and 5.3 bps, respectively. While most markets reflected the positive risk reversal, oil prices crept deeper into a bear market. A sign that some uncertainty remains, U.S. WTI crude cheapened for a tenth time in the last eleven sessions, closing down 1.3% and more than 21% below an early-January peak.


OVERNIGHT TRADING

No Slowing the Global Equity Recovery: This week’s global equity recovery shows no signs of slowing down on Wednesday as major indexes around the world continue to claw back losses that piled up last week on fears tied to the coronavirus. The number of cases and deaths climbed again overnight, but multiple news outlets have pointed to signs of progress towards potential treatments to help explain the latest dose of market optimism. A team of Chinese researchers reportedly found a drug that proved effective against a sample of cells infected with the coronavirus in a lab. Despite the extremely early testing stages, Chinese stocks rose more than 1.1% to lead another solid day across Asia and European markets firmed by similar amounts.

Yields Push Higher, Add to Gains After ADP: Bond yields continued to press higher with Treasury yields leading those increases for a third day. The preliminary estimate of the Eurozone’s composite PMI for January was revised up from 50.9 to 51.3, a five-month high, while new orders touched the best level since June. Germany’s 10-year yield was up 3.8 bps at -0.36%, its highest level in six days. Before this morning’s ADP report, the 2-year Treasury yield was 3.6 bps higher while the 10-year yield had risen 4.8 bps. Those gains briefly bounced modestly higher immediately after ADP’s private payroll estimates nearly doubled expectations. Oil prices finally joined in the improved market tone, with U.S. WTI crude up for just the second time in 12 days.


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