Bonds Higher Despite Bearish ADP Report

STOCK INDEX FUTURES

U.S. stock index futures are lower due to continued uncertainties about the debt ceiling, the Federal Reserve possibly tapering its $120 billion a month in asset-purchases, the global chip shortage, supply-chain disruptions, recent strength in crude oil and natural gas prices and slowing global economic growth, including  weakening sentiment in Asia and Europe.

On the bullish side is the historically low fed funds rate of zero to 25 basis points that is unlikely to be increased any time soon.

Mortgage applications in the U.S. fell 6.9% in the week ending October 1, which is the biggest decline since the last week of June, according to data from the Mortgage Bankers Association. Applications to refinance a home declined 9.6% to the lowest level in three months and those to purchase a home dropped 1.7%.

The September Automated Data Processing, Inc. report showed 568,000 new jobs were created when 428,000 were expected. The national employment report from ADP is calculated from ADP records that represent approximately 400,000 U.S. business clients and approximately 23.0 million U.S. employees working in all private industrial sectors.

There have been so many bearish articles on the outlook for stock index futures in recent days, that from a contrarian point of view, a bottom is likely soon.

Despite the recent pressure, the longer-term fundamental and technical aspects remain supportive for stock index futures.

CURRENCY FUTURES

The U.S. dollar index advanced to close to a one-year high, as firming U.S. Treasury yields make the dollar more attractive to investors. There is a  consensus view that the Federal Reserve will announce a tapering of its $120 billion a month in its asset-purchase program at its November policy meeting. Higher prices for the greenback are likely.

The euro weakened towards $1.15 and is hovering around its weakest level since July 2020. Pressure on the euro was linked to news that euro zone retail sales increased by 0.3% from a month earlier in August 2021,  missing market expectations of  0.8% growth.

European Central Bank President Christine Lagarde reiterated the recent increase in inflation is  temporary, repeating the bank’s narrative that price pressures will ease in 2022.

The British pound is lower after a report showed the IHS Markit/CIPS U.K. construction PMI declined to 52.6 in September, missing market expectations of 54.0.

New Zealand’s central bank hiked interest rates for the first time in seven years and said additional increases are likely.

INTEREST RATE MARKET FUTURES

Yesterday, the International Monetary Fund said it expects global economic growth in 2021 to fall slightly below its July forecast of 6.0%, citing risks associated with debt, inflation and divergent economic trends.

Traders continue to weigh prospects that the Federal Reserve will soon taper its $120 billion a month in asset purchases.

Federal Reserve speakers today are Raphael Bostic at 8:00 and also at 9:30.

The 30-year Treasury bond futures are higher despite the larger than expected, and bearish, ADP employment change report, which suggests the 30-year Treasury bond futures are oversold and will trade higher from current levels today.

The next leg up for the 30-year Treasury bond futures will likely be after the bearish news of tapering details are revealed by the Federal Open Market Committee in a “sell the rumor, buy the fact” situation. The next FOMC meeting will take place on November 3.