ADP Report Unnerved Markets, Stocks Fall, Yields and Mortgage Rates Rise

Barry Adams
06 Jul, 2023
New York City

Market averages turned sharply lower after a hotter-than-expected private sector payrolls report put investors on alert. 

The S&P 500 and the Nasdaq Composite index declined more than 1% after the private sector added 497,000 net new jobs in the month. 

Travel and hospitality sector drove the hirings in June but gains were widespread including in education, transportation and construction. 

The number of job openings declined by 496,000 in June to 9.8 million, according to the Job Openings and Labor Turnover Survey released by the U.S. Bureau of Labor Statistics. 

Job opening fell below 10 million level, but sharply above the pandemic level of 7 million, indicating that labor market conditions remain tight. 

Investors are now looking ahead to the release of non-farm payrolls data on Friday. The broader survey is expected to provide deeper insights into the labor market. 

But odds are rising that the Fed may increase rates by 50 basis points and not 25 basis points as most market watchers are anticipating. 

The rate hike fears dragged interest rate sensitive stocks of home builders, steel makes, semiconductor chip makers and regional banks. 

The plight of banks and regional banks got dire on the worries that higher rates would increase losses in Treasury securities held-to-maturity, which may force banks to seek support from investors or the Federal Reserve Bank.  

Mortgage rates also advanced following the rise in Treasury yields. 

Mortgage rate on widely used 30-year fixed mortgages increased to 7.22%, according to Mortgage News Daily. 

For a home buyer with a $300,00 mortgage, the monthly payment of principal and interest increased to $2,040 from $1,980 a week ago.   

In other economic news, U.S. trade goods and services deficit declined to $69 billion in May from the revised $74.0 billion in May, the U.S. Census Bureau reported Thursday. 

Exports in May declined 0.8% from the previous month to $247.1 billion and imports fell 2.3% to $316.1 billion. 

 

Private Sector Hirings Surged In June 

Private sector employment in June accelerated more than expected after the travel & leisure industry continued to hire at a brisk pace, the latest survey from ADP showed Thursday. 

The ADP data tracks private sector jobs market and the surveys are subject to significant revisions and are often volatile. 

Total new hires in the private sector increased to 497,000 from the downwardly revised 267,000 in May, 

May payroll additions were previously estimated at 278,000. 

Leisure and hospitality sector added 232,000 net new jobs in June, driving the overall hiring in the month. 

"Consumer-facing service industries had a strong June, aligning to push job creation higher than expected," said ADP chief economist Nela Richardson. 

"But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge," added Richardson. 

Construction, transportation and trade and education also reported notable job gains but employment in the manufacturing and information sector saw declines. 

Medium and small size businesses added staff in the month and large businesses shed employees. 

Small employers added 299,000, medium establishments expanded by 183,000 but large companies eliminated 8,000 jobs. 

Wage gains in June slowed to 6.4% after rising at 6.6% in May. 

Investors are awaiting payrolls data from the U.S. Labor Department on Friday, and non-farm payrolls, which includes private sector and government hirings, are expected to increase 235,000 after rising by 339,000 in May. 

Jobless rate is expected to inch lower to 3.6% from 3.7% in the previous month. 

 

U.S. Indexes & Yields 

The S&P 500 index traded down 1.4% to 4,385.92 and the Nasdaq Composite edged lower 1.6% to 13,580.48.  

The yield on 2-year Treasury notes increased, the level not seen since 2007, to 5.05%, 10-year Treasury notes inched higher to 4.03% and 30-year Treasury bonds edged up to 4.0%. 

Crude oil decreased $0.28 to $72.07 a barrel and natural gas prices decreased 3 cents to $2.61 a thermal unit. 

Gold prices dropped to a four-month low and traded at $1,911 an ounce after the latest employment data showed that a tight labor market will force the Federal Reserve to raise rates faster than previously anticipated, raising the opportunity costs to hold the yellow metal.

 

U.S. Stock Movers 

JetBlue Airways Corporation declined 6.8% to $8.70 after the company said it would end its partnership with American Airlines in the Northeast and focus on Spirit Air following the judge's order to salvage its $3.8 billion deal with Spirit Air.   

American Airlines declined 2.7% to $17.82 and Spirit Airlines Inc increased 0.1% to $17.68. 

Meta Platforms Inc declined 0.9% to $291.85 but rose as much as 2% earlier in trading after the company said its new social media platform Threads attracted more than ten million users on the first day of its launch. 

Regional banks and home builders were under pressure on the worries that the Federal Reserve may lift rates at a faster rate of 50 basis points at its next policy meeting. 

Higher rates will expand losses in Treasury notes and bonds held by banks. 

PacWest Bancorp declined 6.5% to $7.87, First Republic Bank gained 11% to 92 cents and Fifth Third Bancorp fell 2.5% to $25.92. 

PulteGroup declined 2.8% to $74.93, Toll Brothers fell 1.7% to $76.37, NVR Inc dropped 2.7% to $6,069.50 and Lennar Corp dropped 2.7% to 120.48. 

Semiconductor stocks traded down after tech stocks led decliners in today's session. 

Nvidia Corp declined 0.9% to $419.25, AMD fell 0.6% to $113.25, Intel decreased 1.9% to 31.93 and Qualcomm Inc fell 2.4% to $114.31. 

 

European Markets Plunged 2% After FOMC Minutes 

European markets traded lower after investors reviewed the retail sales data and factory orders update. 

Market averages in Paris, London and Frankfurt declined and bond yields advanced after investors reviewed the latest minutes of the policy meeting on June 14. 

Eurozone retail sales were unchanged in May and declined from a year ago after households faced twin pressures of rising prices and rates. 

Squeezed households budgets also kept consumers focused on basic items and away from luxury goods. 

 

Euro and Pound Under Pressure, Bond Yields Rise After FOMC Minutes 

The U.S. dollar edged higher against major currencies worldwide after the release of the latest Federal Reserve's minutes of meeting. 

At the last policy meeting ending on June 14, policymakers decided to hold interest rates after lifting rates by 5.0% over the last 15 months. 

All participants agreed that the rate pause may be appropriate in determining the U.S. economy's progress and provide more time to assess the impact of rate increases on the U.S. economy. 

There was a general consensus that despite the cooling of goods inflation following the easing of supply chain constraints, the recent declines in inflation is less than expected. 

In addition, all participants agreed that more rate increases in the remainder of the year may be appropriate in bringing down inflation rate to the central bank's 2% goal. 

The expectations of higher interest rates nudged the U.S. dollar higher and the central bank is expected to raise rates by at least 50 basis points in two increments before the year's end. 

The yields of U.S. Treasuries rose and the yields on Indian and European bonds edged higher. 

 

German Factory Orders Surged In May

German factory orders rose 6.4% in May from the upwardly revised 0.2% in April, the Federal Statistics Office or Destatis reported Wednesday. 

New orders surged the most since June 2020 after large ticket items and new orders for vehicles increased 8.6% and other transport equipment soared 137%. 

 

Eurozone Retail Sales Unchanged In May 

Retail sales in the eurozone remained unchanged on a monthly basis for the second month in a row in May after falling in February and March, the statistical office of the European Union reported Wednesday.  

Household budgets have been hit hard twice, first by rising prices and second by higher borrowing costs. 

Food, beverages and tobacco sales declined for the fourth consecutive month and declined 0.5% in May after falling 0.3% in April. 

Sales of automotive fuels declined for a second month in a row and fell 0.3% in May after falling 2.4% in April. 

However, nonfood items sales increased 0.1% in May after rising 0.3% in April. 

On a yearly basis, retail sales declined 2.9% in May and fell for the eighth month in a row. 

 

Europe Indexes & Yields 

The DAX index dropped 2.5% to 15,528.54, the CAC-40 index declined 3.1% to 7,082.29 and the FTSE 100 index decreased 2.2% to 7,280.50. 

The yield on 10-year German Bunds inched higher to 2.63%, French bonds traded higher to 3.18%, the UK gilts edged up to 4.66% and Italian bonds increased to 4.39%.

The euro edged higher to $1.088, the British pound to $1.277 and the U.S. dollar fetched 89.55 Swiss cents

Brent crude decreased $0.10 to $76.75 a barrel and the Dutch TTF natural gas decreased €2.03 to €32.35 per MWh.

 

Europe Stock Movers

Norwegian Air Shuttle ASA rose 2.7% to 90 euro cents after the deep discount airline said passenger traffic rose in June from the previous month and from a year ago. 

Brenntag SE declined 0.7% to €69.54 and the company plans to release findings of its strategic review later in the year. 

Curry Plc declined 9.5% to 48.36 pence after the British electronics retail chain reported lower sales and a decline in comparable sales in the financial year ending on April 29. 

Revenue in fiscal year declined 6% to £9.5 billion and comparable sales from a year ago fell 7%. 

The company swung to a loss of (£481) million from a profit of £71 million and diluted earnings per share was (43.6) pence from 6.3 pence a year ago. 

Avation Plc declined 6.5% to 114.55 pence after the commercial passenger aircraft leasing company said revenue in the fiscal year ending in June was about $90 million. 

Hunting Plc soared 21.7% to 242.50 pence after the oil field servicing company reported profit in the first quarter jumped more than threefold. 

Man Group Plc increased 1.5% to 221.40 pence after the UK-based hedge fund manager acquired a controlling interest in the US-based private credit manager Varagon Capital Partners for $183 million.