Daily Market Color

Positive ADP and European Stimulus Optimism Provide Bid for Risk Assets

Stocks appear poised to end on a high note after an abysmal quarter while Treasuries traded close to unchanged as markets digested a variety of mixed economic data.  The Eurozone looks destined for an expanded quantitative easing program after a reading on consumer prices showed a 0.1% YoY decline, pushing the region back into deflation.  This was the first negative reading since March and it prompted S&P to boldly predict that “the ECB will extend its QE program beyond September 2016, most likely until mid-2018, and that it could reach 2.4 trillion euros – more than twice the original 1.1 trillion commitment”.  It’s worth noting that the less volatile core inflation, which strips out energy prices, remained unchanged from August at 0.9%, but still a long way from the ECB’s 2% target.  Also adding to pressure on the ECB, unemployment in the region ticked up to 11% in August from 10.9% in July.  Japanese data also disappointed, with both retail sales and industrial production missing analyst estimates.

Data in the US surprised to the upside, headlined by the September ADP Employment Report.  The ADP showed US employers added 200,000 jobs in September, up from a revised 186,000 in August.  This beat the 190,000 Wall Street consensus and indicates that the US labor market continues to firm despite weaker global demand.  The energy and manufacturing industries have experienced weakness, but construction and service providers have expanded.  Markets will now shift focus to Friday’s payrolls report, which is also expected to show 200,000 new jobs in September and an unemployment rate unchanged at 5.1%.

In addition to the data, the market gets corporate supply ($10 bln HP deal) and a variety of Fed speakers including Dudley, Yellen, Bullard, and Brainard.

 

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