Yesterday’s ADP employment report showed that there were 219,000 new hires in the month of July. This was well above the markets expectations of 175,000 and increases the odds of tomorrow’s Bureau of Labor Statistics (BLS) report exceeding expectations as well. With the BLS report anticipated to show approximately 185,000 new hires, it seems likely that we will see the actual number come in well above expectations on the BLS report as well. Considering that the Unemployment Benefits “sample week” showed new claims at a 49-year low, combined with the Challenger Gray Job Cut Report showing that 90% of companies are either in hiring or retention mode, the clear choice is to error on the side of predicting a strong report.
Following a 2-day Open Market Committee Meeting, the Fed released an uneventful report. As expected, interest rates remained unchanged. However, the Fed did strengthen their verbiage on the state of the US economy, going from a “solid pace” to a “strong pace.” This sets the stage for the market to anticipate a rate hike when the Fed meets next in September. In addition, there is a possibility of even one more before the end of 2018.
Given the risks of tomorrow’s BLS report, we will maintain our locking bias.