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AN ADP EMPLOYMENT SURVEY INSPIRED RALLY

Short-dated Treasury yields fell yesterday as the private sector ADP Employment Survey unexpectedly dropped in September.  The market increased the amount of possible Fed easing by year’s end to 46 bps from 42 bps right before the data was released.

ADP noted that their data has been “recalibrated” as more information became available from prior months, suggesting that payrolls growth may been “slightly positive” if it had not been for this adjustment.

As noted many times the close correlation between the ADP survey and the BLS Employment report has waned considerably over the past several years, the ADP data is the highest profile report on September’s jobs market given the government shutdown.

Consensus does believe the ADP report may over exaggerate the softness but is the highest profile statistic to use to formulate outlooks.

The yield curve steepened moderately on the data.

Most agree that shutdowns have an insignificant impact on economic activity and stock market direction.  However, what set this shutdown apart from the 21 prior shutdowns since 1976 is the threat of permanent layoffs for non-essential federal staff.  Is this just bluster, subject to the inevitable legal challenges?

The expected job reductions from DOGE have yet to occur [and is unlikely to happen].  Will the Administration now attempt to use the shutdown to accomplish an objective of DOGE…reduce bloated federal government employment?

Equites were quietly higher on the data and the shutdown as it may reinforce the bullish monetary policy narrative.

Last night the foreign markets were up.  London was up 0.02%, Paris up 1.20% and Frankfurt up 1.26%.  China was up 0.52%, Japan up 0.87% and Hang Seng up 1.61%.

NASDAQ and Dow futures are up 0.5% and flat respectively on unbridled AI optimism.  Gold continued its unrelenting advance.

Additionally, the rumored Berkshire Hathaway purchase of OXY’s chemical division was formerly announced last night.  It is Buffet’s largest acquisition in three years, not even placing a dent in the company’s $300 billion in cash which is primarily invested in short term US Treasuries making Berkshire Hathway the largest holder of the security. 

 The 10-year is up 1/32 to yield 4.10%.

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Kent Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.