US Labor Data Misses Expectations While Global Government Yields Push Higher

Economic data released today was highlighted by ADP’s employment report, which displayed the second lowest increase in monthly private payrolls for the year.  The number of new hires by private employers in the US totaled 158,000 in June, falling from May’s robust 230,000 revised level and missing expectations of 188,000.  The increase in payrolls fell within the service providers category, led by a 69,000 gain in professional and business services.  The MoM reduction in new payrolls suggests a tempering of the strong gains seen in the beginning of this year as businesses continue to contend with a tightening labor market and uncertainty surrounding the Trump administration’s implementation of business-friendly new fiscal policies.  Other labor data on the day included initial jobless claims for the week ended July 1st, which showed a 4,000 increase to a seasonally adjusted 248,000 in new claims.  The figure represents the third consecutive week of increases, albeit still well within the threshold associated with a healthy labor market.  Tomorrow’s more comprehensive jobs report released by the Labor Department is expected to print at a 170,000-monthly increase for June and no change to the unemployment rate at 4.3%.  Another economic data point released today was the Institute for Supply Management’s non-manufacturing index, which exceeded expectations with a monthly rise to 57.4.  June’s reading was boosted by an uptick in new orders and further points towards a recovery in Q2 economic growth.

In foreign markets, German bond yields rose to their highest levels in the past 18 months as investors continue to reassess the probability of a short-term tightening by the ECB following last week’s policy meeting.  The yield on the 10-year German bund touched as high as 0.57% during the trading session, partially influenced by an unexpected drop in demand during a French debt auction earlier today.  Tomorrow the two-day G20 summit meeting will formally begin in Hamburg, where a plethora of issues ranging from climate control to trade policy to the North Korean nuclear threat will be discussed.  President Donald Trump will also hold his first meetings with Russian President Vladimir Putin and Chinese President Xi Jinping, which after last year’s allegations of Russia’s interference with the US election and China’s relationship with North Korea, are sure to be important meetings.

US Treasury yields followed European government yields higher during today’s trading session.  US yields/swap rates are currently up 1-6 bps across the curve in a bear steepening pattern, bringing the yield on the 10-year note to 2.37% and nearing a three-month high.  All three major US stock indices are trading 0.55%-0.75% lower following the weak employment data and continued North Korean concerns.  Crude oil prices rebounded from yesterday’s drop-off, with WTI crude futures up 0.85% to $45.50/barrel and Brent crude up 0.7% to $48.10/barrel, after US crude oil inventories reported a surprise 6.3-million-barrel drawdown for the week ended June 30th.  Median forecasts had called for a 100,000-barrel build.