Treasury yields declined to the lowest levels in nearly a month following a weaker than expected gauge of job creation and the first contraction in the service sector since last June. The market has priced in higher odds of two quarter point cuts by year end, in October and December. The market also increased a move in September to around 90%.
Monetary policy expectations have been whipped around, ranging from 1 to 3 interest rate cuts based upon the data point released.
Commenting about jobs, the ADP Employment Survey, formerly a top tier data point that was closely correlated to the BLS Employment Report greatly missed expectations. The Survey indicated the economy created the fewest number of private sector jobs since March 2023.
As noted, the correlation has waned over the past several years, but to the degree the statistics missed expectations increases the odds of a downside surprise in Friday’s BLS report.
The ISM Services Index also missed expectations, falling nominally into a “contracting territory.” The statistics, however, “is not indicative of a severe contraction but rather uncertainty that is being expressed broadly among the Survey panelists,” according to the ISM.
Commenting about the Biege Book or the statistical survey utilized at the upcoming Fed meeting, nothing new was discovered. The ongoing general uncertainty has led to a cautious outlook for households and businesses. Labor growth was characterized as stagnant and widespread expectations of rising inflation pressure moving forward, perhaps with prices rising in the next three months. It was all but ignored.
Is the hard data beginning to show the strain of tariffs? Perhaps the only certainty to write the hard data is indicating the uncertainty of the tariffs which could then impact the economy.
For what it is worth department and is perhaps completely meaningless the Atlanta Fed GDP Now model is suggesting 2Q growth around 4.5%, the point being that this data set—albeit very immature, is suggesting strong growth. Most believe it will begin to deteriorate in the immediacy, perhaps with the first significant change occurring after May’s BLS Employment report released on Friday.
Equities were quiet.
Last night the foreign markets were up. London was up 0.32%, Paris up 0.38% and Frankfurt up 0.34%. China was up 0.23%, Japan down 0.51% and Hang Seng up 1.07%.
Futures are flat ahead of tomorrow’s jobs data. The 10-year is up 4/32 to yield 4.34%.
