Outsized ADP Nonfarm Employment Fizzles Stock Rally give back

On Wednesday evening (GMT+3), the US ADP Nonfarm Employment data was released, clocking in at 208,000 jobs added, better than the 200,000 forecasted and August’s 185,000. While the manufacturing, natural resources, and mining industries reported a loss of 29,000 positions, huge additions in the trade, transportation, utilities; and business and professional services sectors more than offset the losses. 

Medium-sized companies (50-499 workers) led the gains with 90,000 additions, followed not far off by 60,000 from large firms and 58,000 from small businesses.

“We are continuing to see steady job gains,” said Nela Richardson, chief economist at ADP. “While job stayers saw a pay increase, annual pay growth for job changers in September is down from August.”

A strong labour market, one of the key mandates of the Fed, has been instrumental in giving the Fed the confidence to proceed with inflation-combating rate hikes – one of the main market movers so far this year. 

Federal Reserve bank of Atlanta president Raphael Bostic said on Wednesday he favoured raising interest rates to 4.5% by the end of the year, implying a further 125 basis points of tightening. 

Post Market

The dollar resumed its wider upward trend at the news, surging 1.39% at the news alongside a lower-than-expected non-manufacturing PMI of 56.7. The 10-year T note, meanwhile, climbed back above 3.7%, sending gold downwards as investors rotate out of the non-yielding asset. 

At dollar strength, the pound and euro both dipped over 1%.

Equities also halted a short rally on Wednesday’s trading as markets approached with caution ahead of Friday’s coming NFP data. The S&P edged down 0.2% for the day, while the DJIA dropped 0.14%. 

Investors are now awaiting the US NFP figures, which will be released at 15:30 (GMT+3) on Friday, 7 October.

While ADP recently adjust its methodology in September for more accurate reporting, divergence from NFP figures was still wide for last month’s numbers, with ADP reporting an increase of 132,000 against an expected 300,000. The BLS, which produces the NFP report, printed a reading of 315,000 vs an expected 300,000. 

September’s NFP sits at a 250,000 forecast amid predictions of a slowing labour market

Markets are now betting on a 67% chance of a 75-point rate hike and a 33% chance of a 50-point hike for November’s interest rate decision. 

As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.