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Briefing.com Summary:
*The U.S. government is officially in a shutdown period after failing to pass a continuing resolution by midnight.
*ADP employment data for September was not a good look for the labor market, but a good sign for an October rate cut.
*Nike is on the move following its fiscal Q1 earnings report.
The U.S. government entered a shutdown phase at midnight after the Senate, in a 55-45 vote, failed to pass a continuing resolution to keep the government funded through November 21. The bill needed 60 votes to pass. The equity futures are lower this morning. Cause and effect? Not really, yet that won't stop others from drawing a direct line from Point A to Point B.
Currently, the S&P 500 futures are down 28 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 124 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 109 points and are trading 0.3% below fair value.
The fact of the matter is that this shutdown was telegraphed yesterday, and the stock market closed the third quarter with a flurry of buying interest that led to gains for each of the major indices.
The shutdown is a matter to contend with; it's just not a matter to reckon with, at least not now. The prevailing assumption is that a resolution will ultimately pass without undue economic damage being done. We have seen reports suggesting each week the government is shut down will subtract 0.1 percentage points from GDP.
The immediate consequence is that hundreds of thousands of federal employees face a furlough and perhaps a permanent job loss; meanwhile, economic reports compiled by government agencies will be left on ice, including the weekly initial jobless claims report on Thursday and the September Employment Situation Report on Friday if there is no resolution (double entendre) before then. The Senate is expected to vote around 11:00 a.m. ET today on the same continuing resolution.
There was some notable employment data released today, however. ADP reported that the private sector shed 32,000 jobs in September (Briefing.com consensus: 40,000) following a downwardly revised loss of 3,000 jobs in August (from 54,000). The report incorporated benchmark revisions. Per ADP, that resulted in a reduction of 43,000 jobs in September compared to pre-benchmarked data.
Revisions or not, this was not an uplifting piece of labor market data. The goods-producing sector lost 3,000 jobs, and the service-providing sector lost 28,000 jobs. Small and medium establishments combined shed 60,000 positions, while large establishments added 33,000 jobs.
The key takeaway from the report is that it connotes a noticeably weaker hiring environment, and that, in turn, is apt to convince the Fed, in the absence of the employment report from the BLS, to press ahead with another 25-basis-point rate cut at the October FOMC meeting.
The Treasury market and the fed funds futures market look aligned with that thinking. The 2-yr note yield, at 3.60% before the release, is down five basis points to 3.55%, and the 10-yr note yield, at 4.15% before the report, is down five basis points to 4.10%. According to the CME FedWatch Tool, there is a 100% probability of at least a 25-basis-point cut in October versus 96.2% a day ago.
The macro scene has most of the market's attention this morning, but not all of it.
- Dow component Nike (NKE) is up 4% following a better-than-feared fiscal Q1 earnings report, which featured tariff and gross margin pressures.
- AES Corp. (AES) is up 12% on an FT report that Global Infrastructure Partners is close to a $38 billion deal to acquire the company.
- Lithium Americas (LAC) is soaring 33% after reaching an agreement on an equity stake for the U.S. government.
- Berkshire Hathaway (BRK.B) is reportedly looking at a $10 billion acquisition of Occidental Petroleum's (OXY) petrochemical business.
This is a smattering of some of the notable micro headlines, and they are moving the affected stocks as opposed to the broader market. The broader market, for its part, will keep with its macro focus when the ISM Manufacturing Index for September (Briefing.com consensus: 49.2%; prior 48.7%) is released at 10:00 a.m. ET.
