Chaotic American Politics, ADP Impresses One Last Time

Chaotic American Politics, ADP impresses one last time, Oil higher on weaker dollar and surprise draw, Gold recaptures $1900

US stocks climbed higher following further progress with stimulus talks and after an impressive round of economic data showed the economic recovery is still going strong with the labor market, manufacturing, and housing. Treasury Secretary Steven Mnuchin voiced optimism that he will reach a deal on relief with House Speaker Nancy Pelosi. House Speaker Pelosi is at $2.2 trillion and the Republican Problem Solvers Caucus seems to be at $1.5 trillion. The post-debate polls show President Trump did not make any progress in narrowing Biden’s lead and this might make Trump push his people to get something done to keep the economy going strong into November.

US Economic Data

ADP reported private payrolls rose 749,000, much higher than the consensus estimate of 649,000 and the upwardly revised 481,000 prior reading. The ADP report highlighted strong hiring increases with small businesses (up from 52K to 192K), the service-providing sector (rising from 389K to 552K), and manufacturing jobs (surging from 9K to 130K). Throughout the labor market recovery during COVID-19, ADP has underestimated the nonfarm payroll report, so investors might become a little more optimistic about Friday’s report.

The Chicago PMI unexpectedly surged to a 21-month high, with all five key components posting strong gains. It was a strong report that showed production bounced back strongly, with output and demand rising, but despite the improvement in hiring, firms continued to mention additional layoffs in September.

Housing data continues to be the bright spot of the economy. Today’s pending home sales release was impressive with a record high 8.8% increase in August, crushing the forecast of 3.0%. The housing market is not cooling anytime soon, perhaps it will around the holidays.

Not much attention was paid to the final second quarter GDP readings as they are extremely old. The ugly Q2 data was slightly revised better across the board, but nothing to brag about. The final GDP annualized Q/Q was -31.4%, better than the preliminary -31.7% reading.

US Politics

The first presidential debate did not deliver any seismic shifts in the polls. Yes, Wall Street nudged up the odds that Biden will win, but the key takeaway is that they are fearful that we could see a delay in getting a final vote count and that President Trump will challenge the result.

Oil

Oil prices rose after a weaker dollar emerged from fiscal stimulus hopes and a surprise draw saw inventories fall to the lowest level since April. It’s been a bad month for WTI, the first decline since the historic plunge we saw in April. The EIA crude oil inventory did not provide any relief for demand woes. Distillate demand tumbled and jet fuel demand continues to slide.

WTI crude is following the stock market rally today and will likely remain vulnerable until the positive developments occur with the crude demand outlook.

Gold

Gold is putting a disastrous September behind and focusing on likely prospects that more stimulus is around the corner. Gold jumped higher after both House Speaker Pelosi voiced optimism on stimulus deal prospects and Treasury Secretary Mnuchin outlined a path that could have an understanding reached by Thursday.

Washington DC might not get a deal done this side of the election, but no one doubts that it will happen shortly after. Across the Atlantic, ECB President Lagarde signaled the ECB could announce a similar strategy to the Fed to fight low inflation. The ECB review will end next September but it seems very likely they will be ready to do more in the meantime given the weakness with the economic recovery.

Gold is back above $1900 and that could stick as stimulus prospects seem to be growing globally.