Before the market open, US equities remained near the flat line after futures traded in a very tight range overnight. However, after the weaker-than-expected ADP private payrolls report and ISM non-manufacturing index were released, markets began to price in slower job growth than expected. The ADP private payrolls report showed monthly growth of 158,000 jobs, lower than the 200,000 estimate and lower than the prior month's upward revision of 237,000. Particularly troublesome was the low growth in the construction subset. In the report, construction jobs showed zero growth from the month prior, the lowest reading since ADP began reporting the data in October 2012.
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The ISM non-manufacturing index was very weak and ISM's chairman Anthony Nieves stated on the monthly conference call that order growth was notably slowing, but was not related to sequestration. In particular, the new orders, prices paid, and employment subindexes in the report all contracted.
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The US market was very weak across the board today, even though the major indexes only gave up 1%. All 10 sectors of the S&P 500 were in negative territory and breadth on the NYSE was 5:1 negative. Homebuilders in particular were weak again, down 3% today. Commodities also struggled despite a weak dollar. Gold (-1.1%), silver (-1.1%), and WTI crude (-3%) were all negative. Treasuries continued their rally with the 10-year yield falling five basis points to 1.809%.
Tomorrow's Financial Outlook
Overnight in the US, the Bank of Japan will release its monetary policy statement. As this is the first policy meeting for the newly appointed governor Haruhiko Kuroda, we should expect to see very aggressive monetary easing in an effort to fight deflation in Japan. Their actions will drive the yen and Japanese Nikkei index, which in turn will influence where US markets open. A weaker yen will weaken US Treasuries and by extension US equities.
Not to be outdone, the European Central Bank and Bank of England will release monetary policy decisions before the US market open. Though there is speculation that the ECB may cut rates at this month's meeting, all but one official economist estimate expects the ECB to leave rates unchanged. A similar outcome is expected from the BoE, though the dovish faction has been pushing for a 25-billion-pound increase in its asset purchase program.
On the US front, weekly initial jobless claims are expected to come in at 357,000, on the high side of the 4-week moving average, currently sitting at 343,000, and above last week's 353,000. Planned job cuts data is espected earlier in the pre-market.
There will be no major earnings reports in the US.
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