Treasuries Rally on ADP Jobs Data; Stocks Drop: Markets Wrap

(Bloomberg) — US Treasuries rallied after private payrolls data reinforced expectations of the Federal Reserve cutting interest rates later this month. Stocks dropped as the US government shutdown threatened a blackout in crucial economic reports that the central bank needs to make its decisions.

Treasury yields fell across the curve, with the 10-year rate declining to 4.10%. The S&P 500 slipped 0.3% after the benchmark’s strongest September in 15 years. Gold rallied while the Bloomberg Dollar Spot Index fell for a fourth day.

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The ADP report on Wednesday showed payrolls at US companies unexpectedly dropped in September, consistent with other data over the past month indicating that the labor market is slowing. Traders accordingly added to bets on two more Fed rate cuts this year. After markets opened, data showed US factory activity shrank in September for a seventh straight month — but markets didn’t seem to react much to the report.

While the Bureau of Labor Statistics’ nonfarm payrolls data will likely be delayed because of the shutdown, traders have already received some snapshots of the jobs market this week. The JOLTS report on Tuesday signaled that demand for workers is slowing. Still, investors are concerned about the how long the government shutdown will go on for and what data the Fed will be deprived of.

“It’s not expected that we’ll see Friday’s jobs report if the government remains closed, and even the mid-October CPI inflation report is at risk,” said Glen Smith, chief investment officer, GDS Wealth Management. “A lack of data comes at a time when the Fed is set to decide once again later this month on what to do with interest rates.”

Despite the uncertainty surrounding markets, some investors are looking at previous shutdowns to determine that such events often don’t last long and have a negligible macroeconomic impact.

“What sets this shutdown apart is the threat of permanent layoffs for non-essential federal staff, which, while possibly political bluster and subject to legal challenges, could prolong the drag on public sector payrolls,” Thomas Ryan, North America economist at Capital Economics, wrote in a note.

Stuart Kaiser, Citigroup’s head of US equity trading strategy, doesn’t really see the shutdown hurting stocks for now.

“For this to really impact equity markets you’re going to need it to last for a while, you’re going to need to see pretty large layoffs or something happen in the bond market to spill over into the equity market,” he said on Bloomberg Television on Wednesday.

That said, on the long term, the government shutdown could magnify concerns about US policy stability, Lauren Goodwin, economist and chief market strategist at New York Life Investments, wrote in a note.

“Investors can operate under a simple rule of thumb: the longer a shutdown lasts, the greater its effects on consumer confidence, economic activity, and market outcomes,” she said.

Key Corporate News:

Amazon.com Inc. launched a private-label brand that offers a range of grocery items largely priced below $5 in a bid to attract inflation-stung shoppers. Peloton Interactive Inc. overhauled its hardware lineup and raised prices, some of the first major moves under new management aimed at lifting the company out of a multi-year slump. The US is pushing for a change in global bank rules that would increase the burden on some of the euro-region’s largest lenders, setting the stage for a clash with Europe’s most senior bank supervisors. Pfizer Inc. secured a reprieve from President Donald Trump’s long-threatened tariffs on the pharmaceutical industry Tuesday by agreeing to slash some of its drug prices by up to 85% and selling directly to the American public, a move other major drugmakers are expected to follow. BBVA SA’s €17 billion ($20 billion) takeover bid for Banco Sabadell SA was accepted by a major shareholder, providing a boost as Spain’s second-largest bank aims to get more than 50% of the rival’s shares. Some of the main moves in markets:

Stocks

The S&P 500 fell 0.3% as of 10:12 a.m. New York time The Nasdaq 100 fell 0.3% The Dow Jones Industrial Average fell 0.1% The Stoxx Europe 600 rose 1% The MSCI World Index was little changed Currencies

The Bloomberg Dollar Spot Index fell 0.1% The euro rose 0.1% to $1.1747 The British pound rose 0.4% to $1.3503 The Japanese yen rose 0.6% to 146.97 per dollar Cryptocurrencies

Bitcoin rose 2.2% to $117,167.92 Ether rose 2.7% to $4,308.39 Bonds

The yield on 10-year Treasuries declined five basis points to 4.10% Germany’s 10-year yield declined one basis point to 2.70% Britain’s 10-year yield declined one basis point to 4.69% Commodities

West Texas Intermediate crude fell 1.3% to $61.54 a barrel Spot gold rose 0.3% to $3,869.30 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Andre Janse van Vuuren, Sujata Rao, Emily Graffeo, Isabelle Lee and Vildana Hajric.

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