More gains for US stocks but ADP issues possible warning sign

Summary:

• ADP employment change: 129k vs 184k exp. 197k prior

• Lowest reading since the November 2017 release

• US stock markets still called to open firmly higher

It’s a pretty big week on the economic release front for the US and the markets may be feeling a little less sure of themselves heading into Friday’s non-farm payrolls main event after a private sector precursor has just come in at it lowest level in almost 18 months. You have to go back to the November 2017 release to find an ADP employment change lower than this afternoon’s +129k, which was also well below the consensus forecast of +184k. There was an upward revision to the prior month of 14k which now stands at 197k but there’s no escaping the fact that this is a potential warning sign.

ADP fell to its lowest level in almost 18 months in March, with the goods producing sector actually turning negative. Source: XTB Macrobond

As if often the case there’s not been a big market reaction to the release, with traders often seeing it more as setting expectations for NFPs instead of a big market moving event itself. Looking ahead to Friday’s number, it could now be seen to take on a greater importance with concerns growing around the ongoing strength of the US labour market. It seems odd to state that any additional weakness is bad news per se, when US employment figures on the whole remain close to their best levels in several decades, but a soft print on Friday could start to raise concerns that we are close to peaking in the current cycle. Last month saw a scarcely believable print of +20k for NFP, so any revisions should be looked for carefully and the consensus is for the March print to come in around 175k. Before that we also have the ISM non-manufacturing data due out at 3PM this afternoon, with a strong print of 58.1 expected after 59.7 prior. Monday saw the manufacturing equivalent top estimates and send stocks higher.   

For the third day in a row there’s green across the board for US indices heading into the cash session with the US2000 leading the way and higher by almost 1%. The US30 has been lagging behind its peers in recent months but the market today has already taken out recent highs to trade at levels not seen since early October. Price is back within 700 points or roughly 2.5% of its all-time high and if it gains traction above 26210 then a retest could well occur in the not too distant future.

The US30 is now back within 3% of its all-time high and looking to make a decisive break above the 26210 region despite the soft employment data. Source: xStation