Oil Rebounds as Investors Shift Focus to Friday’s Payrolls Release

Both US stocks and Treasurys are rallying marginally as investors search for the next major driver of market direction.  WTI crude, which recently re-entered bear market territory and has been weighing down risk assets, is rallying for only the second time in 10 days.  With Canadian and Nigerian supply disruptions from earlier this year now back online, the global supply glut is expected to return, but a larger than expected gasoline drawdown has helped boost US crude prices, sending them back above the significant $40/barrel level.
 
Today’s release of the ADP Employment report showed US private employers added 179,000 jobs in July, slightly above the 170,000 economists were forecasting.  All of the new positions came from the services sector, while the “goods-producing sector”, which includes construction and manufacturing, actually lost 6,000 jobs.  The underlying data suggests that despite the strong headline number, the recovery in certain sectors remains uneven.  Investors will now look to Friday’s release of the more comprehensive nonfarm payrolls report, which is expected to show a gain of 180,000 jobs last month, down from the robust 287,000 added in June.  The more moderate but still positive number is expected for July as the economy gets closer to full employment. 

All three major US stock indexes are trading up close to 0.25%, while Treasury yields and swap rates are flat to 1 bp lower across all major maturities.  WTI and Brent crude are both up close to 3%.