Markets Watch ADP For US Jobs Insight

With the official NFP jobs report potentially not being released for a second consecutive time, markets are turning to the private ADP payrolls measure to gain insight into the economy as the Fed seeks to boost the job market.

The Key Insights

• The private ADP payroll data could get increased focus this week in the absence of official NFP figures.
• The consensus is for a modest rebound in job creation to 24K from -32K a month ago.
• The market is still predicting a 70% chance of a rate cut in December, with economists growing increasingly uncertain about the outlook amid missing data resulting from the US government shutdown.

Market Turns to Revamped ADP Amid Shutdown

The US government shutdown is set to become the longest in history today, meaning key official data reports, including the all-important October NFP, will not be released this week. With markets being left in the dark for the second month in a row, the private ADP measure of job creation is likely to gain more prominence. The  last week and will, going forward, publish weekly preliminary estimates of payroll increases in advance of the monthly report. This could give market participants advance information on jobs data and disrupt the way the market reacts to NFP.

There has been controversy about ADP's ability to predict official labour market data. Some analysts suggest that there is little correlation between the private measure and the official measure, since they often diverge. On the other hand, NFP figures are usually significantly revised months later, and the . Perhaps more importantly, given the circumstances and the FOMC's concern about the state of the US labour market, a Fed study showed that both data series are related and correlate at around 94%. The difference between them lies in methodology, where the ADP counts the number of people on payroll, while the NFP counts the number of people who received a pay cheque. The BLS has been facing a problem of declining survey response rates, which has led to increasingly larger revisions over the last few years.

The Potential Market Reaction to ADP

The average forecast for October ADP payrolls is to return to positive at 24K, compared to -32K a month earlier. It is worth noting that last month was also forecast to have a positive number, and markets may be wary of how ADP's new approach might impact the results. The data will be interpreted in light of the Fed's focus on weak labour markets, which it has used to justify two rate cuts this year. Future markets predict a 70% likelihood of a rate cut during the FOMC meeting in December, but these odds could change if the data significantly misses or beats expectations. One significant difference between the ADP and BLS-produced data is the absence of the unemployment rate, which is the Fed's preferred measure of labour market health.

SPX500 Triangle Formation Points to Decline

Price action in the US 500 has been bearish since the index peaked at 6925, with the breakdown under 6815 bringing prices back into the territory of an incomplete broadening triangle. If the market continues to decline, bears may challenge the 6760 and 6700 prior peaks, potentially leading to 6650 and the final triangle wave at 6535. On the flip side, if the index rebounds, it could render the triangle invalid, exposing new record highs if bulls can reclaim 6890, bringing the 7k into focus.

Source: SpreadEx | SPX500 Daily