ADP blows past expectations

The US private sector added 324k jobs in July, according to the ADP employment report. The increase was far more than market expectations which were for closer to 200k and were recorded across multiple sectors. Leisure and hospitality was the sector with the largest gains, up 201k in July, while natural resources and information also reported healthy increases. Similar to what has been reported from the ISM, manufacturing shed jobs last month. The official non-farm payrolls is out later this week with markets estimating about 180k jobs added for July.

The Caixin China services PMI improved for July, rising to 54.1 from 53.9 a month earlier and ahead of market estimates. That represents seven months in a row of expansion while the employment subcomponent rose to 52.2 from 51.9. A dip in the manufacturing PMI, however, helped to bring the composite index lower to 51.9 from 52.5.

Today’s Economic Data and Events

• 11:00 TU CPI y/y July: forecast 46.8%
• 15:00 UK Bank of England bank rate: forecast 5.25%
• 16:30 US Initial jobless claims Jul 29: forecast 225k
• 18:00 US Factor orders June: forecast 2.3%
• 18:00 US Durable goods orders June (f): forecast 4.7%
• 18:00 US ISM Services July: forecast 53

Fixed Income

• Another strong employment report from the ADP helped to propel UST yields higher later in the session, although some of the moves were unwound by end of the day. After spiking up to almost 4.94%, the 2yr UST yield ended the day lower by about 2bps to 4.8767%. The 10yr UST yield held on to its moves and ended the day up 5bps at 4.0775%.
• Gilts will be in focus for today when the Bank of England is due to set policy. We expect another rate hike of 25bps.

FX

• The Fitch downgrade of the US’ top credit rating seemed to have eventually shaken through markets with a flight to safety of the US dollar overnight. EURUSD fell by 0.4% to 1.0938 while GBPUSD dropped by 0.5% to 1.2711. USDJPY held stable at 143.32.
• Commodity currencies also weakened with USDCAD up by 0.5% at 1.335 while AUDUSD fell more than 1.1% to 0.6538 and NZDUSD dropped 1.1% to 0.608.

Equities

• Equity markets sold off yesterday after strong labour market data from the US and a run of strong gains in recent sessions prompted consolidation. Some of the biggest US listings saw sharp losses on the day, prompting the NASDAQ to end down 2.2%. The S&P 500 dropped 1.4% and the Dow Jones 1%.
• There were losses in Asia and Europe earlier in the day also. The Hang Seng lost 2.5% and the Shanghai Composite ended 0.9% lower, while the composite European STOXX 600 lost 1.4%.
• By contrast, local equities gained yesterday with the DFM adding 0.2% and the ADX 0.5%. In Saudi Arabia, however, the Tadawul ended 1.4% lower.

Commodities

• Oil prices were caught up in the broad risk sell off overnight with Brent futures down 2% at USD 83.20/b and WTI down 2.3% at USD 79.49/b. Crude oil inventories in the US fell by 17 bbl, their largest single week draw ever, with crude pulled out of the Gulf Coast region predominantly. Oil production was flat at 12.2m b/d while product supplied pulled back by 1.3m b/d.