Expectations strong for a postponement in Fed's rate hike plan

Market movers today

• ECB: Accounts of the monetary policy meeting of the Governing Council held on 4 and 5 March are published.

• US initial jobless claims and factory orders for February.

• Focus is on tomorrow’s US employment report.

Selected market news

• A weaker than expected US ADP employment number followed by a softer than expected ISM survey drove US Treasury bonds higher yesterday. The 10-year yield fell to a 1.85% low and is trading around 1.87% this morning.

• ADP employment fell to 189,000, which, even when assuming a small gain in government jobs, points to downside risk on tomorrow’s non-farm payrolls report. ADP numbers tend to be more stable than non-farm payrolls, and the recent decline also fits better with a picture of weak US GDP growth in Q1 (currently tracking 1- 1.5%). It is not unusual that periods of non-farm numbers overshooting ADP numbers are followed by an undershoot afterwards – again pointing to downside risk tomorrow.

• The US ISM index fell more than expected to 51.5 with both new orders and employment lower. The US Markit PMI manufacturing index on the other hand was revised up to 55.7 – indicating that Q2 is shaping up better than Q1. The market tends to focus on the ISM, however, which is a little strange given that the PMI in recent years has proven a more stable and reliable indicator.

• The market is highly driven by US economic data at the moment given that this will determine whether the Fed will hike rates this year. Following yesterday’s weaker data, the market is pricing a higher probability that the first hike will be postponed. The futures market is pricing less than a 20% probability of a June hike and only about a 70% probability of a hike by September.

• US equity markets closed slightly lower, but sentiment has improved in Asia trading with most indices higher. Asian stocks have been under pressure recently with the MSCI Asia Pacific index down a little more than 2% since late March.

• Greece submitted a fresh list of reforms to eurozone officials yesterday, according to the Financial Times. The 26-page document outlines measures mainly relying on plans to address tax evasion and fraud. The group of eurozone deputy finance ministers discussed the new document yesterday by phone, but according to an official who has spoken to the Financial Times, there was little progress. Meanwhile, the ECB has raised the cap on Emergency Liquidity Assistance (ELA) further according to Bloomberg.