Searching for Some Jobs Data

• As the shutdown enters its 34^th day, and soon to be a new record this week, the biggest event may be in the court room where on Wednesday the Supreme Court will hear arguments on whether Trump’s emergency tariff authority is constitutional. While hearings on the issue will be Wednesday, a decision is most likely a few weeks away. Also, if the ruling goes against Trump, he still has other avenues in which to pursue tariffs, making any decision less than definitive on tariffs but it provides an interesting story while we toil under a government shutdown. Currently, the 10yr Treasury is yielding 4.11%, up 3bps on the day, while the 2yr note yields 3.60%, up 2bps in early trading.

 

• The first week of a new month is traditionally filled with plenty of economic releases headlined by the Friday jobs report. This month, like October, is different due to the ongoing shutdown. Instead, we are left with picking through private company data releases and the utterances of Fed officials to help fill the void. 

 

• Thankfully, we have the ISM Manufacturing Survey to chew on today, followed by its sibling covering the services sector on Wednesday. As for manufacturing, expectations are that the headline reading will increase ever-so-slightly from 49.1 to 49.2. While a slight improvement is expected, almost equally important will be the readings on prices paid, employment, and new orders. The prices-paid metric was a steamy 61.9 for October while employment registered a more sobering 45.3 and new orders 48.9. We’ll see at 10am ET whether November is signaling anything better in regard to inflation, jobs, and order activity.

 

• ISM Services will help paint the picture of the much larger services side of the economy with a headline reading of 51.0 expected vs. 50.0 in September. Once again, the prices paid, employment, and new orders indices will provide details for the data starved analyst population. In September, the prices-paid metric was equally as steamy as the manufacturing side at 69.4 while new orders were straddling the middle at 50.4. Employment posted a disappointing contraction of 47.2 in September. Another post below 50 will add to worries of a slowing economy and labor market.

 

• Also, on Wednesday ADP will post its October private sector jobs total with 25 thousand new jobs expected vs. a loss of 32 thousand in September. Obviously posting a positive number in October will help ease some recession worries, but we’d rather see the complete picture from BLS that we haven’t had since August. The wage growth, or lack thereof, of job stayers and job leavers will be of interest too as we search the meager offerings of job data for a second month.

 

• In addition to the rate cut at last week’s FOMC meeting, the Fed decided to end the runoff of its portfolio with the winding down of the Quantitative Tightening program after November. That wind down can’t come soon enough after receiving the Fed’s latest H.4.1 report that indicated reserves had fallen by $102 billion in the most recent week to $2.83 trillion. The weekly drop is the largest in six weeks and the reserve total is the lowest since September 2020. The Fed’s repo lines have been getting tapped at a larger rate of late which also speaks to increasing liquidity tightness.

 

• With the Fed poised to reenter the market as a purchaser, we’d like to think that may stabilize prices and keep yields stable to lower but the announced reinvestment program argues against that. Following FOMC instructions, Treasury maturities will be reinvested in like maturities. That is, say a 2yr Treasury matures, the returning principal will be reinvested in a 2yr Treasury, dollar for dollar. For returning MBS principal, which makes up the bulk of returning principal, that cash will be reinvested in TBills. So, it looks like any marginal benefit from ending QT will play out on the short end of the curve rather than provide a boost to prices on longer-dated issues.

 

• As far as Fed speak goes, Fed Governor Lisa Cook kicks things off with a talk on the economy and monetary policy at 2pm ET.  Cook will be followed tomorrow morning by Fed Governor Bowman who we have heard from a few times in recent days. Perhaps more interesting will be Governor Christopher Waller on Thursday, but the title is Central Banking and the Future of Payments, so we’re not sure if how much economic and monetary policy discussion he may offer at 3:30pm ET. 

 

• On Friday, we heard from two of the more centrist-to-hawkish FOMC members and they gave predictable views. Atlanta Fed President Raphael Bostic said a December rate cut was not locked in despite market expectations while Cleveland Fed Bank President Beth Hammack said she opposed Wednesday’s rate cut because inflation is too high (note: while on the FOMC she is not a voting member this year).

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Futures Still See 67% Probability of a December Rate Cut

Source: CME Group

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October ISMs Due This Week – The Struggle to Maintain 50 is RealSource: Institute for Supply Mgmt.

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ADP Employment Report Due on Wednesday – 25k New Jobs ExpectedSource: ADP