Market Update: Wednesday, August 31, 2016

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  • Markets show little reaction to ADP report. U.S. equities are near flat in early trading, following the release of the ADP employment report, the precursor to Friday’s highly anticipated nonfarm payrolls data, which showed the private sector added 177,000 jobs in August, near the consensus expectation of 175,000. Despite the S&P 500 moving lower on Tuesday, financials were a strong outperformer, gaining 0.8% and the only sector to close higher. Overnight, Asian markets closed mixed, though both the Nikkei and Shanghai Composite advanced, moving up 1% and 0.4%, respectively. Meanwhile, European markets are looking for direction as they digest a host of economic data. WTI crude oil has slipped back below $46/barrel, COMEX gold is lower near $1312/oz., and the yield on the 10-year Note is down slightly to 1.56%.

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  • The beat goes on for the labor market. The ADP employment report indicated the private sector created 177,000 net new jobs in August, beating expectations (+175,000). However, the August reading represented a slight deceleration from July’s +194,000 reading, which was revised higher from the originally reported +179,000.  Year to date through August, the ADP employment data show average job growth at 185,000 per month, a slowdown from 2014’s 234,000 per month average and 2015’s 207,000, but still enough to keep the Fed on track to tighten later this year. Federal Reserve Bank (Fed) officials have said job gains in the range of 125-150,000 per month are sufficient to tighten the labor market and push up wages, suggesting this report gets them a bit closer to a rate hike this fall. The U.S. Bureau of Labor Statistics will release its August 2016 Employment Situation Report on Friday, September 2. The consensus is expecting a 180,000 increase in jobs, a 4.8% unemployment rate, and a 2.5% year-over-year increase in average hourly earnings.
  • European inflation below targets. European inflation came in below expectations and well below the European Central Bank’s (ECB) target rate of 2%. Annual inflation was only 0.2%; excluding volatile sectors like food and energy, the annual inflation rate was 0.8%. Removing all commodity influences, services-only annual inflation was only up 1.1%. The inability to get inflation to the 2% target remains a puzzle for the ECB. On one hand, it encourages them to do more quantitative easing and lower interest rates even further. However, there is increasing belief among economist and policy makers that not only is monetary policy at the limit of effectiveness, but it might actually be contributing to the very problems the policy is designed to fix.
  • 6 in a row? The S&P 500 is up 0.12% in August with today being the last day of the month. Should it finish green for the month, this would be six consecutive higher months for the first time since April 2013. It is worth noting though that recently the last day of the month has been historically weak. It has been higher the past two months, but was up only three of 19 times before that.
  • Jobs preview. With the August jobs report coming out Friday morning, today on the LPL Research blog we will do a jobs preview. Expectations are for 180,000 jobs to be created, which would be below July and June, but above the disappointing 24,000 created in May. Incredibly, jobs have been created a record 70 consecutive months, well above the previous record of 48 which ended in July 1990. Be sure to read the blog later today for more insights on this important piece of economic data.
  • How boring is boring? With a day to go, so far August has been boring – but just how boring? Well, using closing prices only, the S&P 500 in August has traded in a 1.54% range – the smallest monthly range since August 1995. In fact, going back to 1928 only six months have had a smaller monthly range.

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Wednesday

  • ADP Employment (Aug)
  • Rosengren (Dove)
  • Eurozone: CPI (Aug)
  • China: Official Mfg. PMI (Aug)
  • China: Caixin Mfg. PMI (Aug)

Thursday

Friday

  • Employment Report (Aug)
  • Lacker (Hawk)

Click Here for our detailed Weekly Economic Calendar

Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

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