Bad news is good news for markets following ADP slump

• European stocks rise despite a raft of weak data points
• Crude declines help sentiment, as US gasoline demand slumps
• US markets look for guidance from jobs data following weak JOLTS and ADP readouts

European markets are in the green in early trade today, coming off the back of a strong rebound for US equities yesterday. On a morning that has seen several concerning economic data points out of Europe, markets appear to be firmly in the ‘bad news is good news’ camp at present. German trade data saw continued contraction for August, with a -1.2% decline in exports bringing the lowest absolute value since March 2022. However, one positive spin on the German trade data came from the 1.2% rise in exports to China. Elsewhere, industrial production data out of Spain and France saw continued pressure for European manufacturing, with the Spanish figure falling for a fifth consecutive month.

Crude oil took a second step back following its recent push through $94, with WTI trading below $83 just a week after that one-year high. For market sentiment, energy prices are key, driving inflation expectations and thus the outlook for monetary policy. With US gasoline demand plummeting to the lowest seasonal level in 25 years, there is a feeling that consumers will not simply swallow ever higher prices. As inflation and higher interest rates continue to squeeze households, there is a hope that rising energy prices will simply drive down demand, acting as a natural stabilizer.

US markets enjoyed a welcome rebound yesterday, as a sharp decline in the ADP payrolls figure dampened expectations for a November rate hike. While weaker economic data could soon serve to hurt market sentiment given the low likeliness of a rate cut anytime soon, the fact that the Fed had planned for another final hike means that any poor data point can help stave off that last rate rise. US jobs data remains in focus as we gear up for Friday’s job report, with the recent JOLTS and ADP numbers signalling a potential downturn to come. Unemployment claims data released this afternoon has yet to signal any sign of distress in the jobs market, with the downward trend in jobless pointing to a healthy employment environment.