ADP data caused confusion on the markets. We are waiting for tomorrow's NFP

The markets have been on an emotional rollercoaster this week. The smallest data can move oceans. Yesterday's was much milder than expected ADP report and information about the strike of 75. Healthcare professionals at Kaiser triggered a positive market reaction on a typical day “bad news is good news".

Data from the US were a mess

The US economy added only 89 jobs in September. New private jobs, much less than the 153 predicted by analysts. It was also the slowest job growth since January 2021. The rest of the data was mixed.

US manufacturing orders were better than expected in August, but the services PMI was close to declining and the non-manufacturing ISM component also indicated a slowdown in activity.

U.S. mortgage lending activity fell to its lowest level since 1995 as 30-year mortgage rates skyrocketed to 8%.

Apart from energy prices, housing and services are among the biggest contributors to high inflation, so observing a cooling in these sectors has a significant impact on inflation expectations and, therefore, Federal Reserve (Fed). Therefore, yesterday's mild-looking data calmed down Fed hawks, after stronger-than-expected data the day before JOLTS caused panic. The U.S. 2-year yield dipped towards the 5% level, the 10-year yield rebounded lower after flirting with the 4,90% level, while the 30-year yield reached 5% for the first time since 2007 before rebounding lower after the release of news about soft labor market data.

The dollar index is falling

The U.S. dollar index fell and stocks rebounded. The S&P 500 has jumped from its lowest levels since early June. The score is now one to one. One good news for the US labor market and one bad news. Everyone is holding their breath right now, awaiting Friday's jobs data, which will determine whether we end this week with a sweet or sour taste in our mouths.

The sweet taste would be weaker employment data and the sour taste would be still strong employment data, which would fuel hawkish Fed expectations and push US yields even higher, while US yields are at a critical juncture.

Bonds are better than stocks

For the first time since 2002, the 10-year US bond yield is within striking distance of the S&P 500's gains. S&P 500 index is just 60 points above the critical 200-DMA. Looking at the seasonality chart, the S&P 500 should decline around now. In this context, there is a chance that the US employment data will mean the end of the index sell-off.

But one thing is certain: yields and the US dollar need to fall to keep the S&P 500 on an upward path. The earnings of S&P 500 companies are inversely correlated with the US dollar, as their international earnings make up about one-third of the total. If yields and the US dollar continue to rise, the S&P 500 will face significant headwinds by the end of the year.

Oil fell almost 6%

Growing suspicions that the global economy is heading straight for a wall did not spare oil bulls yesterday. A barrel of American oil dropped by almost 6%, fell below the 50-DMA ($85 per barrel) and below the positive underlying trend built since the end of June.

A 6,5-million-barrel build in gasoline stocks last week helped bring bears back to the market, although data also showed oil stocks falling by more than 2 million barrels in the same week.

Yesterday's move shows that rhetoric is everything when it comes to intraday moves. This summer, the market has been focused on growing global oil supply and how the United States will make a soft landing despite the Fed's aggressive tightening. Now we are starting to talk about the economic slowdown and fears of a recession.

With yesterday's decision, OPEC+ decided to keep its oil production strategy unchanged. Saudi Arabia and Russia reiterated that they will cut production to maintain positive pressure on oil. However, if global demand weakens and volumes decline, both Saudi Arabia and Russia will be tempted to increase profits by selling more oil at a lower price.