All eyes were on the stock market yesterday to see how it performs after the first presidential debate. It did not disappoint.
While both candidates claimed victory in the debate, the stock market benefited not from the debate’s outcome, but from the strong U.S. data coming out yesterday. Among other data, the ADP (private payrolls) impressed the most.
The U.S. added almost three-quarters of a million jobs in September, with details looking even better than the headline. Considering the NFP tomorrow, one can only imagine a positive surprise there too.
Details of the September 2020 ADP Release
More than 40% of the newly created jobs were at large employers. By definition, a large employer is one having more than half a million employees.
Small businesses came in strong as well. Almost 200k new jobs were added by the small businesses private sector, a more than welcome news considering that this sector suffered the most since the coronavirus pandemic hit the United States.
Furthermore, another strong comeback has been seen in the leisure/hospitality sector. Over 92k jobs were created in the leisure and hospitality sector, another sector strongly affected by the pandemic.
As normal for a service-based economy, the services sector added more than twice the number of jobs than the manufacturing one – 552k vs. 196k.
The strong jobs data is encouraging heading into tomorrow’s NFP. Remember that the state of the job market in the United States is a strong benchmark for all developed economies. What happens there does not stay there – instead, it spills to other economies too, affecting them in different degrees depending on the trade relations.
If today’s initial and continuing claims confirm the strong ADP number, the NFP tomorrow will likely beat expectations. It does not mean that the USD will trade higher. As a matter of fact, yesterday’s positive ADP data (and better than expected GDP too), the USD weakened. How come?
The USD trades in a strong correlation with the stock market – higher stock market prices, lower USD, and the other way around. Hence, the positive data sent the stock market higher and the USD lower, despite the overall economic interpretation should be positive for the currency.
This is the result of the lack of interest rate differential between major central banks. As such, the world’s reserve currency trades with a risk-on/risk-off tendency, regardless of the actual economic data.