US ADP employment: slight chances of a lack-lustre print

Fundamental View

Yesterday’s action was relatively subdued with the biggest move being the sell-off in equities heading into the US cash open. Bond yields continued to rise as T-notes and Bunds continued their trend lower, trading against conventional expectations. We saw a strengthening in the ISM manufacturing with no immediate reaction but the catalyst for the majority of equity moves yesterday seemed to be a fall in vehicle sales posted by Ford, reporting sales figures at -2.0% against the expected 5.8% increase. General Motors reported a build in sales but underwhelmed market participants with a reading of 4.2% against the expected 5.9%. The seasonally adjusted annual rate for vehicle sales in February also fell from 16.7m annual figure to 16.16m and the January number of 16.56m. The lift in crude allowed energy stocks to pare losses but could not halt the grind lower in other sectors, allowing the S&P to extend lower. A surprise move came from the Ukrainian central bank who raised their benchmark rate from 19.5% to 30% in a move to stave off rising inflation and halt the bleeding of a depreciating currency.

Today’s View

This morning we saw Services PMI readings from mainland Europe and the UK; the Italian figures posted below expectations across both the Services and Composite number; France posted a marginal beat on the Composite expectations but it was Germany which had not only the most significance but also the largest miss on expectations. German services posted 54.7 against the expected 55.5 for the services number and 53.8 against 54.3 for the composite. This allowed the DAX to extend its move lower and test S1 with some weight. This also allowed the euro to weaken against the dollar, bringing a proxy dollar strength move into the GBPUSD currency pair. The UK also posted a miss on expectations and GBP weakened further, halting around the low 23rd February low once momentum expired. Ahead we have US ADP Employment change, Services PMI, ISM non-manufacturing composite and the Department of Energy Crude Oil Inventories. There is a slight chance of a lack-lustre print with regards to the employment number as the US are still recovering from the spell of bad weather and with a bank holiday contained with the month, it is likely that an in-line to slight miss could be probable. The API figures from last night were mixed with a low reading from Cushing, but builds in gasoline. This makes the DOE release this afternoon unclear; although the headline would suggest a drawdown overall, we are loathe to recommend trading these instances as previous weeks have proven that supply data can cause price to react contrary to the fundamental announcement.