Weak Economic Data Supports Case for Fed Rate Cut

 

Financial markets received a flurry of less-than-encouraging US economic data this morning. ADP reported that private employers added 102,000 jobs to their payrolls in June. This fell short of estimates which had called for a +140k gain and dampened hopes of a strong recovery from last month’s +41k disappointment.

 

 

The US trade gap widened to a 5-month high during May. The deficit jumped 8.4% to $55.5 billion ($54bn expected), driven chiefly by a 12.2% increase in the goods trade deficit with China, which a number of market pundits link to US businesses stocking up on Chinese imports in anticipation of the White House imposing additional tariffs.

 

 

A second straight month of declines in factory goods orders was reported during May, yet another signal of weak demand amid the rising global trade tensions. New orders declined 0.7% (-0.6% expected), while the prior month’s figure was revised sharply lower to a 1.2% drop-off. In the service sector, the Institute for Supply Management’s Non-Manufacturing Index also missed median forecasts, reported at 55.1(56.0 exp) – its lowest reading since December 2017.

 

 

US Treasurys extended their rally in today’s holiday-shortened trading session, as the bevy of weak data provided further support for a Fed rate cut later this month. The yield on the 10-year note touched its lowest level in more than two years, poised to close near 1.95% as yields/swaps rates declined 1-3 bps across the curve. Major US equity indices finished about 0.75% higher on the day to new record highs, buoyed by growing expectations for a monetary policy easing. Crude oil prices managed to recover a portion of yesterday’s tumble, as WTI futures climbed 1% to $56.80/barrel.