ADP Report Tees Up Weak April US Jobs Report

Economic Data

- (PL) Poland Central Bank (NBP) left its Base Rate unchanged at 1.50%, as expected
- (IE) Ireland Mar Industrial Production M/M: 3.0% v 24.5% prior; Y/Y: 41.5% v 39.9% prior
- (PT) Portugal Q1 Unemployment Rate: 13.7% v 13.5% prior
- (ZA) South Africa Q1 BER Consumer Confidence: -4 v -1e
- (US) MBA Mortgage Applications w/e May 1st: -4.6% v -2.3% prior
- (BR) Brazil Mar Industrial Production M/M: -0.8% v -0.7%e; Y/Y: -3.5% v -3.0%e
- (US) Apr ADP Employment Change: +169K v +200Ke
- (US) Q1 Preliminary Nonfarm Productivity: -1.,9% v -1.9%e; Unit Labor Costs: 5.0% v 4.5%e
- (BR) Brazil Apr Services PMI: 44.6 v 47.9 prior; Composite: 44.2 v 47.0 prior
- (US) Q1 MBA Mortgage Foreclosures: % v 2.27% prior; Mortgage Delinquencies: % v 5.68% prior
- (CA) Canada Apr Ivey Purchasing Managers Index (Seasonally Adj): 58.2 v 49.2e
- (US) DOE Crude: -3.9M v+1Me; Gasoline: +0.4M v +0.5Me; Distillate: +1.5M v -0.5e

Equity trading has been choppy this morning as participants respond to the big miss in the April ADP report. In addition, the bond sell-off continues, with the 10-year UST yield up another four basis points to 2.225% and the 10-year bund yield up seven bps to 0.585%. As of writing, the DJIA is down 0.38%, the S&P500 is down 0.21% and the Nasdaq is off 0.23%.

Today's April ADP report bodes ill for Friday's April US jobs report. The ADP numbers missed expectations and fell to their lowest level since January of 2014. Virtually all the job gains were in small and medium-sized businesses, and were almost all in the service sector, with manufacturing losing a small number of jobs. Meanwhile, Q1 productivity fell by a 1.9% annual pace, resulting in the first back-to-back drop since 2006. Analysts suggest this reflects businesses rapidly adding more employees. The greenback lost ground sharply in the wake of the data, with EUR/USD shooting above 1.1360 from 1.1230 before the report.

The DoE weekly inventories report included the first draw-down in crude inventories since early January. Crude inventories saw a surprisingly large drawdown versus expectations for another small build. Last night's API inventories report saw the first drawdown in stocks in eight weeks. Front-month WTI firmly took out $61 yesterday but is having a harder time with $62 this morning. Brent is up 2.5% to trade above $69.

The ECB council is meeting to debate tighter ELA rules for Greek lenders. The council may increase the discounts levied against collateral Greek banks pledge in exchange for emergency ELA funding and may raise the amount of ELA funding available for the 13th time. Meanwhile, Greek PM Tsipras was meeting with EU Commission President Juncker discussed pension and labor reforms, while Fin Min Varoufakis was talking with his EU colleagues to possibly get a deal done at the May 11th Eurogroup.

In earnings, Wendys is up nearly 5% after disclosing plans to divest itself of 640 co-operated restaurants. Quarterly results were in line. Electronic Arts missed earnings targets, revenue disappointed and its first quarter guidance was terrible, however the firm raised its FY and authorized a modest new buyback, which is making all the difference. EA is up 4.3%. Drug giant GSK is giving up some of its solid gains after a largely in-line earnings report. Allstate and Fossil are both down on mixed earnings reports.

Alexion Pharmaceuticals agreed to pay a huge premium to buy rare disease specialist Synageva BioPharma for about $225/shr in cash and stock in an $8.4 billion deal. Synageva notably has no products on the market. Alexion officials said the deal will help their company accelerate and diversify its revenue growth and expand their company's manufacturing abilities. Shares of ALXN are down 9%.

Looking Ahead

- (EU) ECB non-monetary policy meeting
- 13:15 (US) Fed's George (Non-voter, hawk) in Washington
- 13:30 (US) Fed's Lockhart (voter, moderate) in LA
- 17:00 (KR) South Korea Apr Foreign Reserves: No est v $362.8B prior
- 21:30 (AU) Australia Apr Employment Change: +4.0Ke v +37.7K prior; Unemployment Rate: 6.2%e v 6.1% prior
- 21:35 (JP) Japan Apr Services PMI: No est v 48.4 prior; Composite PMI: No est v 49.4 prior