Renewed Fears of China Trade War 

Yields move lower as trade worries reemerge. UST yields rose ~1 bp to intraday highs this morning, but reversed course in the afternoon on reports that the Trump Administration is considering restrictions on software exports to China. Rates declined ~2 bps in the immediate aftermath of the news and closed 1 bp lower across the curve. 2-year and 10-year yields are now at 3.44% and 3.95%, respectively. Meanwhile, the S&P 500 declined 0.53% while the NASDAQ fell 0.93% due to concerns about US-China relations.

White House still weighing trade war escalations with China. New reports today say the Trump Administration is still considering possible curbs of software-powered exports to China. The move would be a dramatic escalation as trade tensions between the two nations have just recently calmed, following tariff threats from both countries last week. While President Trump’s callout of “critical software” is vague, restricting shipments of goods that either contain or were produced using US software would include anything from laptops to jet engines. Administration officials familiar with the matter said that some voices in the White House oppose drastic escalation measures with China and fear causing harm to the US economy. Others believe President Trump may threaten such measures but not go so far as to implement them, as with the previously threatened 100% tariff, which reportedly remains on the table but hasn’t moved forward.

ADP Research no longer providing data to the Fed. According to a person familiar with the matter, ADP Research, a payroll services firm, has stopped sharing its private-sector employment data with the Fed. It’s not clear what led to the decision for ADP to stop providing its services, as the company has worked with the Fed for the past few years. This comes as private data is more important than ever to the Fed, with government data releases paused due to the government shutdown. ADP employment data released on October 1st showed a sharp decline in private sector hiring, missing expectations by over 80k and causing yields to fall 6 bps in the aftermath.