Morning Minutes

Commodities Climb As ADP Payrolls Weaken




US ADP payroll growth slowed significantly in November and came in worse than expected (127K vs street 200K and previous 239K), seemingly confirming widespread street speculation that US employment could potentially weaken after the midterm elections. Weekly jobless claims tomorrow and US nonfarm payrolls on Friday may indicate if this is a one-off disappointment or potentially the start of a more significant trend.

On this news, the US Dollar has been weakening and commodity prices have soared, apparently on speculation that a weakening economy could add to the case for the Fed to slow the pace of interest rate hikes. Gold is up 0.6%, Silver is up 1.75%, Platinum is up 2.8% Copper is up 2.6%,and WTI Crude Oil is up 2.8%. US index futures are up 0.1% to 0.4%, while in Europe the Dax is up 0.4% and the FTSE is up 0.9%.  

Recent comments from Fed officials on the path and potential peak for interest rates from here have been mixed, so investors may look to today’s speech from Fed Chair Powell at 1:30 pm EST to settle the matter for the moment. The Fed’s Beige Book regional economic report is due at 2:00 pm EST.  

Overnight, China posted disappointing and contractionary Manufacturing PMI (48.0 vs street 49.0) and Non-Manufacturing OMI (46.7 vs street 51.7) numbers indicating, not surprisingly, that the recent wave of COVID lockdowns has had a negative impact on its economy. US Chicago PMI (street 47.0 vs previous 45.2) is due at 9:45 am EST.

European inflation data out this morning has been mixed with EU inflation improving (10.0% vs street 10.4% and previous 10.6%), but Italian inflation was worse than expected (12.5% vs street 12.0%). Note both of these numbers indicate that inflation is still running hotter in Europe than in North America at the moment.

Canadian bank earnings were mixed this morning. Royal Bank, coming off yesterday’s HSBC Canada acquisition announcement, beat the street on EPS ($2.78 vs street $2.68) and raised its dividend, but National Bank ($2.08 vs street $2.24 and year ago $2.19) reported disappointing numbers. Both banks increased loan loss provisions from a year ago.

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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