Morning Markets Brief 9-2-2020

Summary and Price Action Rundown

Global risk assets are continuing their strong start to September as investors await US labor market data, which is expected to be solid. S&P 500 futures indicate a 0.6% higher open after the index climbed 0.8% yesterday, increasing its year-to-date gain to 9.2% and registering a new all-time high. Equities in the EU are outperforming, while Asian stocks were mostly higher overnight. A broad dollar index is backing off its recent 28-month low, while longer-dated Treasury yields are fluctuating near the top of their recent range, with the 10-year yield at 0.68%. Brent crude is advancing back toward $46 per barrel in anticipation of bullish US inventory data.

US Jobs Data in Focus

This morning’s release of the ADP tally of private sector employment for August is the next in a series of increasingly consequential US labor market readings this week, culminating with Friday’s nonfarm payroll report. The ADP jobs figure is expected to rebound to 1.0 million after it showed that private businesses in the US hired just 167 thousand workers in July, dramatically undershooting both the record high 4.3 million increase in June and consensus expectations a 1.2 million rise. For context, the ADP jobs number is seen as a relatively poor indicator of the more closely-followed nonfarm payroll reading, but given the uncertainty surrounding August labor market data, it may be more closely scrutinized today. This comes ahead of tomorrow’s release of initial jobless claims data for the week ending August 29th, which is forecast to again improve to below the closely-watched 1 million threshold after the readings from the two weeks in mid-August indicated a degree of backsliding from the previously ongoing downtrend. Economists generally expect this Friday’s reading of August nonfarm payrolls to show continuing strength, with a forecast of 1.4 million new jobs after 1.8 million the prior month, and the unemployment rate falling to 9.8%. Though official data reflects a solid pace of improvement in US labor market conditions, yesterday’s Gallup polling on worker attitudes conveyed heightened uncertainty, with 27% of US workers saying they are worried about being laid off, a figure up from 15% last year, with the degree of concern significantly higher for non-white versus white workers.

Deadlock Continues for US Pandemic Relief Bill

The latest signals from Capitol Hill suggest little progress toward a compromise. House Speaker Pelosi yesterday expressed continued disappointment with the White House’s negotiating position on the currently stalled fiscal support bill, criticizing the Trump administration’s unwillingness to fund what she characterized as essential Covid-19 containment efforts at the state level and again rejecting a staged approach to the bill, which Treasury Secretary Mnuchin apparently suggested again in their call yesterday. Congressional Democrats have consistently shunned the option of a piecemeal series of agreements, citing Senate Leader McConnell’s expressed unwillingness to vote on more than one bill and potential loss of leverage by segregating the more contentious issues, like aid to states, from the more consensus segments, like augmented unemployment benefits. This comes after Secretary Mnuchin in his Congressional testimony yesterday reiterated the need for prompt fiscal support for impacted US workers and pledged to re-engage with House Democrats on the stalled negotiation. Meanwhile, the support provided by the executive orders issued by President Trump early last month remains unevenly implemented and Senate Republicans are preparing a possible vote on a “skinny” $500 billion version of the bill when they return from recess next week. White House Chief of Staff Meadows has indicated that he hopes the Senate bill could form the foundation for a more comprehensive deal but it is unclear how this would be different than the piecemeal approach already rejected by Speaker Pelosi.

Additional Themes

Post-Abe Policy Continuity Likely – Chief Cabinet Secretary Suga, a close ally of outgoing Prime Minister Abe, indicated that he is in the running for the premiership and pledged continuity with “Abenomics.” He emphasized the maintenance of PM Abe’s relations with the Bank of Japan and cited the importance of additional monetary easing to meet potential economic challenges going forward. The yen is continuing to retrace more of its reflexive appreciation versus the dollar from last Friday following PM Abe’s surprise resignation.

Oil Prices Seek Non-OPEC Support – The American Petroleum Institute has reportedly forecast a sixth straight week of US crude inventory declines, which is helping steady crude futures near their recent highs this morning. The Energy Information Administration will release the official stockpile data later today. This comes as analysts are pondering the ability of oil prices to hold their gains even as OPEC and its allies begin to taper their extraordinary supply curbs. Analysts have cited the weaker dollar and China’s inventory build as providing some support, but the demand picture of the coming months is expected to the be key driver of any move out of the current tight price range for both international benchmark Brent crude and US benchmark WTI.