Ouch. New range confirmed. MBS down 62 bps on the open. Stocks losing by 46 points too.
Bonds came into the session in just slightly weaker territory, but yields are screaming higher after a round of strong labor market data. The ADP headline is palpable considering it attempts to operate on the same scale as the mighty NFP (both are counts of new payrolls), but the Challenger data is perhaps just as troubling for rates. 40k is the lowest reading in 8 months and it’s not remotely in line with the “ongoing labor market softening” that the Fed said would coincide with only 2 more rate hikes.
ADP Employment = 497k vs 228k f’cast
Challenger Job Cuts = 40.709k vs 80.809k prev
Jobless Claims = 248k vs 245k f’cast, 239k prev
Consumer-facing service industries had a strong June, aligning to push job creation higher than expected. But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge. As usual, leisure / hospitality was the biggest contributor to job growth, adding 232k jobs, while construction added 90k. White collar and manufacturing jobs fell. Wage growth fell to 6.4% from 6.6% for job stayers, and fell to 11.2% for job changers. Job changers received the lowest annual increase since October 2021.
ISM Services = 53.9 vs 51.0 f’cast
ISM Activity index = 59.2 vs 51.9 f’cast
ISM Prices = 54.1 vs 56.2 f’cast
ISM Employment = 53.1 vs 49.2 f’cast
Job Openings = 9.8m vs 9.935m f’cast, 10.103m prev
The July Fed Funds futures are close to a lock for another 25 basis point hike at the July meeting in 3 weeks.
Yesterday’s recap suggested that bonds were bracing for impact from incoming economic data. It turns out that much more bracing would have been needed to avoid a big sell-off. Even then, it would have been hard to brace for an ADP ‘beat’ as big as the one we saw (497k vs 228k f’cast, 278k prev). With the big jobs report up tomorrow and NFP forecasts in the same territory, bonds were right back to “bracing” mode today. The surrounding data wasn’t quite as extreme, but none of it helped push back in a friendly direction. 10yr yields quickly crested 4% and MBS lost over half a point (nearly a full point at the weakest levels of the day).
MBS closed down 45 bps. Which is actually 47 bps better than the worst point of the day. Stocks lost 35 points. The 10yr is up 10 bps
The United States pays interest on approximately $850 billion in debt held by the People’s Republic of China. China, however, is currently in default on its sovereign debt held by American bondholders.
Successive U.S. administrations have chosen to sidestep this fact, allowing business and trade with China to proceed as normal. Now that the relationship with China has soured and the People’s Republic of China has become the greatest adversarial threat to the U.S. and Western security, policymakers should revisit this appalling failure of justice.