US jobs report in play after ADP slump

• FTSE 100 leads the way as fiscal fears recede.
• US jobs report in play after ADP slump.
• US-Vietnam deal sees US target Chinese transhipment.

European markets are on the rise today with the FTSE 100 attempting to regain lost ground as a sharp rise in borrowing costs raised fear of another Truss/Kwarteng moment yesterday. The watered-down version of the Labour welfare reforms does mean we are staring at a fiscal black hole which like means greater tax hikes, with the pop in UK bond yields highlighting the fear of financial instability in the UK. With Reeves known to follow the premise that all day-to-day spending must be covered by tax revenues, the prospect of her losing her post had initially spooked markets. However, Starmer’s efforts to calm markets appears to have paid off, with the PM pledging that she will “be the chancellor into the next election and for many years afterwards”.

Today provides a rare Thursday jobs report out of the US, with tomorrow’s 4th July Independence Day holiday meaning that we get treated to the monthly data deluge a day early. Hot off the heels of yesterday’s dour -33k ADP figure (lowest since March 2023), traders are left wondering whether we will see a third consecutive NFP beat off the back of a big ADP miss. For markets the current lack of any notable uptick in inflation pressures does mean that they can dream of near-term rate cuts, but realistically it would require significant job market weakness in the form of an unemployment spike, or a payrolls collapse. In reality, the ongoing tariff uncertainty will mean that market perception over where rates go in H2 will be dictated by whether Trump pushes trade taxes sharply higher for some of their key trading partners next week.

The Vietnam deal announced yesterday provided a notable nod to the Chinese, with the 20% tariff on imports rising to 40% for Transshipments. Notably this raises questions over whether Chinese companies will declare their goods as having been shipped via a secondary country or simply origin washing them by adding a layer of processing in that intermediate nation. For Vietnam, this could provide a potential gain should Chinese imports fall under a significantly higher tariff bracket.

Gains for the likes of Nike highlight the feeling that a 20% tariff is something that could be workable for sportswear and apparel providers. Typically, the cost of materials and production are relatively low for many within the clothing and sportswear industry, and thus investors are clearly confident that the hefty margins will be able to swallow the one-off hike in prices without needing to relocate manufacturing back to the US. Interestingly, the question here is whether these businesses raise prices globally in a bid to counteract their lower US margins, or provide an inflationary bump for US consumers only.