ADP Payroll Data Beats Forecasts

STOCK INDEX FUTURES

Valuation concerns, particularly in tech, have led a sell-off in global markets recently. ADP private nonfarm payroll figures for October came in well above expectations at 42,000 new jobs, while last month’s figure was revised slightly higher from -32,000 to -29,000. The rebound in hiring was focused in education, healthcare, trade, transportation, and utilities, while professional business services, information, and leisure and hospitality all saw employers shed headcounts.

Markets have been undergoing a sharp sell-off in tech stocks, particularly related to AI and chipmakers. AMD sank nearly 5% in premarket trading despite an earnings beat with record revenue and profitability that led the company to provide strong fourth-quarter guidance. Consequently, its revenue forecast underwhelmed investors, leading to shares of the company dropping. Meanwhile, Super Micro Computer fell 9% following a weaker-than-expected earnings outlook for the current period. Nvidia slipped 1.2%, and Qualcomm edged down 0.2% ahead of its earnings release after the bell today.

Market attention turns to ISM services PMI data out later in the morning, while updates on the Supreme Court’s hearing of arguments regarding President Trump’s sweeping tariffs will be closely watched. The court’s decision will have significant consequences for the global economy.

CURRENCY FUTURES

US DOLLAR: The USD index moved higher, remaining near three-month highs as ADP’s upside surprise in payroll figures provided the dollar with a slight tailwind. US ISM services PMI data will be out later in the morning and could impact forex markets if the data causes Fed expectations to shift. Money markets are pricing a 70% chance of a December rate cut from the Fed, unchanged from before the release of ADP payroll data and down sharply from being nearly fully priced in before the Fed’s decision last week. The shift in expectations has supported the dollar. Fed speak remains mixed, and paired with uncertainty over labor market and inflation data, markets will continue to monitor remarks from Fed officials for clues into the Fed’s policy path.

EURO: The euro is little changed, reversing some earlier gains as ADP private payroll data gave the dollar a boost. German factory orders and French industrial output both rebounded in September, potentially signaling a recovery in Europe’s factory sector after tariffs had initially dented demand following a wave of frontloading. Factory orders rose 1.1% on the month in Germany, up from a 0.4% fall in August. Meanwhile, industrial output in France climbed 0.8% on the month, helping to offset much of the 0.9% fall in the prior month. Both figures beat forecasts. Elsewhere, services PMI figures were revised higher across Germany, France, Spain, and Italy, although did little to move the currency. German industrial output figures will be released Thursday alongside eurozone retail sales data. The ECB is experiencing a rare phase of low inflation and stable growth, and with inflation near target and a reduction in downside risks, it is in no hurry to cut rates.

BRITISH POUND: The pound is higher but pared some earlier gains ahead of the Bank of England’s policy meeting Thursday. Money markets are pricing in roughly a 33% chance that the BoE will cut rates at this meeting, opening up the door for some volatility following its decision. Markets had previously not priced in any moves until the spring. A cooler-than-expected inflation reading helped add to bets that the central bank would cut rates earlier than expected, although inflation still remains well above the 2% target at 3.8%. Finance Minister Rachel Reeves refused to rule out tax rises in the upcoming budget. Reeves on Tuesday said the budget, due in late November, will focus on bringing down debt and inflation. For the BoE, it will give policymakers an understanding that the government is likely to raise taxes, something it will take into account when it updates its quarterly monetary policy report Thursday following its policy decision.

JAPANESE YEN: The yen fell lower, reversing earlier gains as ADP’s payroll report led to dollar strength. Finance Minister Katayama reaffirmed the government’s urgency in monitoring FX movements, briefly supporting the yen, although it has since fallen close to levels it was at on Monday. The yen is nearing past intervention thresholds, and weakness may persist unless the BoJ signals tightening or the government hints at market action. Meanwhile, the BoJ remains patient despite internal calls to raise rates. BoJ Governor Kazuo Ueda signaled that the central bank is in no rush to hike rates after the BoJ held rates steady last week. Household spending data, which could offer leading clues on inflation, will be released Friday.

AUSTRALIAN DOLLAR: The Aussie is little changed. The Reserve Bank of Australia held rates steady yesterday and signaled that any more policy easing will be on hold. Higher inflationary pressures in the economy continue to persist, causing the RBA to revise its forecasts for inflation higher. The RBA also said it does not see core inflation returning back to its 2%-3% target until mid-2026. The RBA expects trimmed mean inflation to reach 3.2% by the end of the year, up from the current 3%, a sharp upward revision from the previous forecast of 2.6%. Headline inflation, which ran at 3.2% in the September quarter, is now seen peaking at 3.7% by mid next year in part due to the expiration of government electricity rebates. The RBA also expects the labor market to remain steady, projecting the unemployment rate to remain at 4.4% over the coming years after recently ticking higher to 4.5%. Money markets are now only placing a 10% chance of a cut in December from the RBA, signaling that its easing cycle may be over as inflationary pressures in the economy begin to materialize.

INTEREST RATE MARKET FUTURES

Futures are lower across the curve following the release of ADP’s private payroll data that beat out expectations and saw a rebound in private hiring. Markets will look ahead to today’s ISM services PMI data out later in the morning for any data that could shift Fed expectations.

The Treasury said it expects to keep its nominal coupon and floating rate note auction sizes steady for at least the next several quarters but is beginning to consider future increases. The Treasury will auction $125 billion in its quarterly refunding next week. This will include $58 billion in three-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds. The Treasury said it has begun to preliminarily consider future increases to its nominal and floating rate note auction sizes and is evaluating trends in structural demand and assessing the potential costs and risks of various issuance profiles. The Treasury will vary the size of its bill issuance over the coming quarter based on its needs. It expects to make modest reductions to short-dated bill auctions sizes in December, based on corporate and non-withheld tax receipts. It then expects to increase them again by the middle of January 2026, based on expected fiscal outflows.

Recent Fed speak has been mixed; Chicago Fed President Goolsbee said he remains more concerned about inflation than employment, while Governor Cook pointed to rising risks of labor-market weakness. San Francisco Fed President Daly urged officials to “keep an open mind,” and Governor Miran emphasized that policy remains restrictive. Markets are now implying a 70% chance of a Fed cut in December. On top of comments from other officials, a growing divide among policy members regarding how to proceed in December is apparent. Paired with an absence of data and inflation that is still resting well above the Fed’s target, there is likely to be strong resistance to continuing to lower rates.

The spread between the two- and 10-year yields rose to 52.20 bps from 51.50 bps on Tuesday, while the 2-year yield, which reflects interest rate expectations, rose to 3.592%.

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