ADP slows sharply in September

The ADP employment report estimated just 89k private sector jobs added in September, its smallest print since the start of 2021. Professional and business services, manufacturing and trade and transportation all reported job losses last month while hospitality was the main contributor to the growth. The incentive to leave jobs was also the weakest since 2021 with the median increase in pay for job leavers at 9%. The official nonfarm payrolls report is out at the end of this week and is expected to show job growth of 170k for September.

The ISM services index dropped in September to 53.6, down from 54.5 a month earlier. Orders dropped off sharply last month which may reflect moderating demand while overall activity managed to accelerate. Prices paid were higher last month while there were some indications that delivery times had also increased.

Eurozone retail sales sank by 1.2% m/m in August, accelerating the drop that started in July and setting Q3 up for a weak headline GDP print. Activity was lower across all sectors with online and mail ordering down a large 4.5% m/m while food sales were also lower by more than 1%. Major economies of Germany and France recorded sizeable drops of 1.2% and 2.8% respectively. Spain was a relative outlier among large economies with a 0.4% gain.

Both Saudi Arabia and Russia committed to keeping their production and export cuts in place until the end of the year, according to press statements from both countries. Saudi Arabia has been cutting by an additional 1m b/d since July to drain inventories and set a floor under oil prices which have drifted lower in the last few trading sessions after Brent had approached near USD 100/b.

Today’s Economic Data and Events

• 09:00 IN S&P Global India services PMI Sept
• 1630 US initial jobless claims Sept 30: forecast 210k

Fixed Income

• US Treasuries were stronger overnight after the ADP report came in soft for September, helping to shift markets from what had been heavy downward pressure in the last several days. Yields on the 2yr UST fell almost 10bps to 5.0518% while the 10yr dropped 6bps to 4.7329%. The 30yr pulled back from having hit 5% to close at 4.8584%, down 6bps.
• European bonds managed to rally overnight as well with bund yields down 5bps at 2.915% and gilt yields down by 2bps to 4.576%.
• Emerging market bonds closed mixed with a broad USD index slightly lower. The EMBIG index managed to gain though GCC credit was offered.

FX

• A return of risk appetite helped to push FX markets higher against the dollar. EURUSD added 0.4% to 1.0504 while GBPUSD managed a near 0.5% gain to 1.2135. USDJPY closed nearer to flat at 149.12 though is moving lower in early trade today.
• Commodity currencies closed mixed with USDCAD up 0.3% at 1.3745 while AUDUSD rose by 0.4% to 0.6235 and NZDUSD closed near flat after the RBNZ kept rates unchanged overnight.

Equities

• US equity indices rallied on news of the September ADP measure of private sector employment being weaker than expected. The Dow Jones rose 0.39%, the S&P 500 increased by 0.81% and the NASDAQ jumped 1.35%.
• Key European equity markets moves were mixed on the day. The Euro Stoxx 50 and Dax both ticked up by 0.1%, while the CAC 40 was flat. The FTSE 100 declined 0.77%. 
• Locally, the ADX and DFM fell 0.15% and 0.23%, respectively.

Commodities

• Oil prices came off sharply overnight with front month Brent futures down 5.6% at USD 85.81/b and WTI dropping about the same amount to USD 84.22/b. Commercial crude stocks in the US dropped by 2.2m bbl last week according to the EIA while gasoline stockpiles rose almost 6.5m bbl. Distillate stocks pulled back. Oil production was flat at 12.9m b/d while product supplied dropped by almost 1m b/d to 19.2m b/d last week.