After a month's break and a methodology update, the ADP is back to publishing its US private sector employment estimates. This is an important indicator for market participants ahead of Friday's official statistics.
ADP says the number of jobs grew by 132K in August, roughly half of the month earlier and well under the expected 300K. So far, the markets have avoided paying much attention to this statistic, as it is unclear how the changed methodology fits the official data.
The first reaction of the stock market was somewhat unconventional. We see a neat buying in the indices in the next hour. We can only explain this market reaction to a downbeat report as an expectation of less tightness from the Fed.
The market is likely wishful thinking as Fed officials continue tightening their rhetoric. Powell and Co. are not shy about saying it is worth temporarily sacrificing the economy to suppress inflation. Only a few months ago, they said they would avoid a recession and avoided using the word altogether. Now they are preparing the public to "accept some pain".
Simply put, markets may be too attached to the idea that the Fed is always on the side of the market bulls. This has practically been the case for the last 30 years. But after all this time, there has been a problem of low inflation, not high, as there is now.
