Yields Whipsaw on Data, Powell Comments

Economic data and Powell’s speech drive today’s market moves. UST yields rose to start the day fueled by hotter-than-expected March ADP employment data, with the 10-year up ~6bps, and the 2-year up ~4bps. Yields then reversed course following ISM services data that showed slower service sector growth in March, and continued their intraday decline after Chair Powell’s speech which was viewed as dovish by markets. Yields ended flat to ~2bps lower on the long end of the curve (except the 30-year, which was up ~1bp). Equities reversed course today after 2-straight down-days, with the S&P 500 and the NASDAQ climbing ~0.11% and ~0.23%, respectively.

Employment gains exceed expectations while service sector activity contracts. March ADP employment data showed that private payrolls increased 184,000, more than the 150,000 consensus estimate and February’s 155,000 revised gain. Commenting on the results, ADP chief economist Nela Richardon said, “Inflation has been cooling, but our data shows pay is heating up in both goods and services.” March ISM services data, released later in the morning, showed that growth in the US service sector declined for a second-straight month in March. The index declined to 51.4 from 52.6 the month prior and was below estimates of 52.8.

Chair Powell reiterates patience before cuts. Fed Chair Powell spoke at Stanford University today and reinforced comments from the March FOMC meeting on the trajectory of rate cuts. He said that even though recent inflation figures were higher than expected, they did not “materially change the overall picture”, and added that, “On inflation, it is too soon to say whether the recent readings represent more than just a bump…we do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2%.” Krishna Guha at Evercore responded, saying, “…the base case remains June [for the first cut] and three cuts this year.”