Nnnnice, UMBS are up 24 bps in the first hour of trading. Should lead to a little better looking rate sheets today. S&P futures are down 3.75 points
Bonds were essentially flat in the overnight session with a very narrow range in both Asia and Europe. There was no major reaction to the earlier employment reports (Challenger at 730am and ADP at 815am), but a modest rally after another elevated reading in Jobless Claims (8:30am).
ADP Employment = 150k vs 160k f’cast, [157k prev]
This is a bit below the 189k expectation for Friday’s jobs report. Of those jobs, 63k were in leisure / hospitality, 27k in construction, and 25k in professional / business services. Wage inflation continues to moderate, with an average YOY compensation change of 4.9% for job stayers, the lowest number in almost 3 years. Job changers saw a 7.7% compensation increase.
Jobless Claims = 238k vs 235k f’cast, [234k prev]
Challenger Job Cuts = 48.7k vs 63.8k prev
Job openings rose to 8.14 million in May compared to a downwardly-revised 7.92 million in April. In May of 2023, there were 9.31 million job openings. 81% of the increase in job openings were due to government jobs, not private sector jobs.
ISM Services = 48.8 vs 52.5 f’cast, [53.8 prev]
ISM employment = 46.1 vs 47.1
ISM New Orders = 47.3 vs 54.1 (big miss)
ISM Prices = 56.3 vs 56.7 f’cast, 58.1 prev
ISM Biz Activity = 49.6 vs 61.2 prev (big change)
Chicago Fed President Austan Goolsbee made the case for a rate cut in the coming months. “We are restrictive. The fed-funds rate in real terms, interest rate minus inflation, is as high as it has been in many decades. And as inflation comes down, that gets tighter.”
Federal Reserve officials said they were awaiting additional evidence that inflation is cooling and were divided on how long to keep interest rates elevated at their last policy meeting.
Minutes from the two-day Federal Open Market Committee gathering ended June 12 showed while “some” officials underscored the need for patience, “several” participants specifically emphasized a further weakening in the labor market could generate a larger increase in unemployment.
Officials “emphasized that they did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation” is on track to their 2% goal, according to the minutes released Wednesday in Washington.
Several days ago, we were debating whether the presidential debate or the month-end/new-month trading environment was the bigger market mover. The political angle was more popular in the analytical community, but evidence is increasingly suggesting that popularity wasn’t necessarily warranted. Today offered some compelling evidence in the form of absolutely no reaction to a widely circulated newswire that seemed to suggest Biden having second thoughts about remaining in the running.
Contrast that to the immediate and obvious reaction to the ISM Services data, which made for the highest Treasury trading volume since PPI and jobless claims data on June 13th. Data will remain in focus when markets return from the holiday break on Friday morning thanks to non-farm payrolls.
UMBS closed the day up 19 bps at 100.39.