Oil Prices Tumble, Weigh Down on Equities Despite Positive Labor Data

In support of a healthy US labor market, this morning the ADP private sector jobs report showed an addition of 177k jobs in August, just above Wall Street predictions of 175k.  US Treasury yields traded near flat following the data, showing that investors remain focused on Friday’s nonfarm payrolls to complete the jobs picture, a figure that has historically disappointed in the month of August.  Equity prices proved immune to the labor statistic as well, with the S&P 500 declining for the fifth time in six days, pushed down largely in part by falling oil prices.  Causing the descent in crude levels, the EIA announced today that U.S. crude inventories rose by 2.3 million barrels last week, dramatically more than the roughly 1 million barrel increase that was expected.  Also contributing to the drop in oil, the U.S. dollar rose to three-week highs against major currencies today as both the Japanese yen and Euro depreciated to their lowest levels in nearly a month.  Overall, the month of August saw a 15% rise in crude prices, boosted primarily by speculation that members of OPEC will come to an agreement to freeze production at next month’s conference in Algiers.

Abroad, European equities closed lower on the day following lackluster inflation numbers.  Consumer prices increased 0.2% in August compared to last year, below analysts’ expectations of +0.3%.  The report of an economic slowdown comes one week before the European Central Bank meeting, where fresh stimulus in addition to the current asset purchases, negative interest rates and long-term retail loans is now on the agenda.  In Brazil, Dilma Rousseff’s presidential rule of 13 years came to an end as she was impeached today following a guilty ruling of bypassing Congress to finance government spending.  The decision marks the second time a Brazilian president has been impeached since the country adopted a democracy in 1985.  Vice President Michel Temer will assume presidential duties until the Brazilian general elections in 2018.

All three major U.S. stock indexes are currently trading down close to 0.5%, while Treasury yields and swap rates are near flat compared to yesterday’s close.  Both Brent and WTI crude prices declined sharply today, down 2.7% and 3.5%, respectively.