Bonds Drop, Jobs Surge: Market Insights & Analysis

US Bonds sold off early in the trading session following the release of the ADP National Employment Report which displayed US private companies hiring at the fastest pace since 2014.  Private payrolls increased by 253,000 during May, surpassing expectations of +185,000 and significantly higher than the previous month’s +174,000 revised level.  The robust figure serves as a positive indicator heading into tomorrow’s more comprehensive payroll report, where median forecasts predict a 185,000 addition to payrolls and a 4.4% unemployment rate.  In a separate report, initial jobless claims totaled their highest weekly level in more than a month, albeit still within the range associated with a healthy labor market, increasing by 13,000 to a seasonally adjusted 248,000.  The four-week moving average of claims edged 2,500 higher to 238,000, and the number of Americans receiving benefits as of the week ending May 20th fell 9,000 to 1.915 million.  In the industrial sector, the Institute for Supply Management showed a ninth straight month of expansion during May in its Manufacturing Index, climbing 0.1 point to 54.9.  The new orders component exhibited particular strength, rising 2.0 points from the previous month, in addition to factory employment rising 1.5 points MoM.   

Today’s positive economic data contributed to a risk-on trend in financial markets, with all three major US indices finishing up 0.65%-0.80% for the session.  Treasurys recovered a bit after the initial selloff, with yields/swap settling up 1-2 bps across the curve.  The yield on the 10-year note is currently holding above 2.21% as we head into tomorrow’s payroll figures.  Rates markets were treated to commentary from Fed Governor Jerome Powell earlier today in one of the final speeches from Fed officials before the June FOMC meeting lockout period.  Powell acknowledged the recent slide in consumer price data, but characterized the readings as temporary deviation from the current path and said “there are good reasons to expect that inflation will resume its gradual rise.”  He further confirmed his expectation for two more quarter-point interest rate hikes in 2017, bolstering the case for a hike at the June meeting.  The US dollar added 0.2% against major currencies on the day, highlighted by a 0.6% rise against the yen.  Crude oil prices fluctuated throughout the session as a decline in US inventories led futures higher before eventually settling back to current levels of just below even.