ADP payrolls ahead

A positive start to the day for mainland European indices with the FTSE 100 lagging as the optimism scene in UK markets starts to fade. In the morning that has been dominated by a raft of services PMI releases across Europe, we have seen out performance across the board. Notably the one area of particular strength in the FTSE 100 centres around the commodity space, as both oil and copper prices push sharply higher. Notably the downside risk for oil has eased after a somewhat predictable lack of a resolution after yesterday’s five-hour negotiations between the Witkoff and Putin. With each gain Russia makes on the battlefield, the likeliness of an immediate deal fades, reducing their urgency to find any solution that involves compromise.

Today brings the release of the ADP non-farm payrolls figure, which takes on increased importance in the absence of Fridays official jobs report. The justification for a rate cut next week centres around weakness in the jobs market and therefore markets are likely to take a ‘bad news is good news’ approach. The CME are currently pricing an 87% chance of a rate cut on Wednesday, and the 5K job creation figure anticipated today would likely embolden calls for the Fed to take action.

Yesterday saw the tech sector take centre stage, with traders seemingly willing to buy the dip on stocks that had been caught up in claims of an AI bubble that was about to pop. As the third-quarter earnings season draws to a close, it is worthwhile noting the relatively positive picture it portrayed. On one-side some will note that the Mag7 earnings growth of 18.4% represented the worst figure since Q1 2023. However, that was largely a result of the Meta miss, with the average for the remaining six coming in at a healthy 30.4%. Meanwhile, the earnings growth for the S&P 493 rose to 11.9%, which stands at roughly double the 5.9% expected by markets. While we are seeing confidence return for the US tech stocks, fears around an AI bubble will undoubtedly play a key role for investors going forward. Therefore, valuation fears will likely remain, driving investors towards increased diversification into different sectors, geographies, and assets classes.