Title: Market Analysis: ADP’s Weakest Print Since Reopening Economy, ISM Services Report Shows Modest Hiring
Yesterday’s release of ADP’s 99k print marked the weakest data point since the economy began reopening in 2021. Small businesses were shedding staff in August, while medium and large businesses were hiring at a very modest pace. The ISM Services report, although steady and in line with consensus at 51.5, revealed a drop in the employment sub-index to 50.2, more than expected.
However, amidst the grim news, there was a surprising contraction in continuing claims from 1860k to 1838k in the week ending 24 August, as highlighted by ING’s FX strategist Francesco Pesole.
Looking ahead, there are three broad scenarios for Payrolls that could impact the market. A Payrolls figure below 100k with unemployment rising to 4.4% could prompt a 50bp Fed cut in September, leading to a decline in the dollar. On the other hand, if Payrolls are softer than consensus but above 100k, with unemployment unchanged or up to 4.4%, the market may be left guessing on the size of the September cut. Finally, if Payrolls meet or exceed consensus and unemployment declines, a 25bp cut in September could lead to a hawkish repricing in the USD OIS curve.
Our US Economist’s estimate for Payrolls is 125k with unemployment up to 4.4%. Markets may anticipate a 50bp cut this month, which could keep the dollar capped until the rate cut event unfolds. Expectations of USD weakness driven by Payrolls could benefit low-yielding and pro-cyclical currencies today.
In summary, the recent data on ADP’s print and the ISM Services report, along with the upcoming Payrolls figures, are crucial factors that could influence the market’s expectations of a Fed rate cut in September. Stay informed and be prepared for potential market movements based on these economic indicators.