It’s jobs week and that means today we received the ADP Employment Change Report which disappointed finding only 428,000 new private sector jobs when 1.00 million were expected. That compares to an even weaker but upwardly revised 212,000 jobs in July. Meanwhile, the Friday BLS Employment Report is expecting 1.39 million new jobs versus 1.76 million in July, so a slight decrease but still very respectable. What’s interesting, besides the obvious discrepancy between ADP and BLS numbers, is the wide range of estimates with a low of 100,000 jobs lost to a high reading of 2.40 million jobs gained. With a range that wide a significant beat or miss is very possible. Given the strength in other measures of late (see the ISM Manufacturing Index below), we are leaning towards a beat but the ADP miss does give us pause. Finally, in this week's podcast, we sat down with two of CenterState’s own: Patty Gorman and Parker Grubbs from our Capital Markets Division to discuss investing in the age of COVID. Most banks are awash in liquidity but afraid to invest much of it given uncertainties around the virus and the economy. Parker and Patty discuss some strategies and products that have worked for many of their clients this summer. The itunes link can be found here and the Spotify link here.
One of the bigger surprises coming out of the lockdown in the spring was just how strong the manufacturing sector would rebound. As the graph below shows of the ISM Manufacturing Index, the sector sunk to a low reading of 41.5 in April, deeply in recessionary territory. The index is constructed such that 50 represents the dividing line between an expanding sector from a contracting one. The August reading was a continuation of that strength with a reading of 56.0 versus expectations of 54.8 and July’s 54.2. The August reading is the highest since late 2018. Other sub-indices also handily beat expectations including gauges on employment, new orders, and prices paid. So, you can add the manufacturing sector to housing as probably the two strongest coming out of the steep contraction in March and April.
Copper/Gold Ratio and 10yr Treasury Yields
We’ve posted the Copper/Gold Ratio and 10yr Treasury Yields several times in recent months as the historical performance between the two has been quite similar. When the Copper/Gold Ratio is rising that implies strengthening economies as copper is widely used in so many applications and yields typically lift in such conditions. Recently, however, the ratio was rising from the pandemic-inspired low of March and April but the 10yr Treasury yield initially resisted that move. More recently there has been some volatility in the ratio but it has since resumed an upward track and this time 10yr Treasury yields are following. That’s partly a consequence of the Fed’s recently unveiled Monetary Policy Framework that implies a greater willingness to let inflation lift above the 2% target than was the case before. In any event, with the Copper/Gold Ratio rising once again, it looks like 10yr Treasury yields have more room to lift.
Agency Indications — FNMA / FHLMC Callable Rates
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