The Day Ahead: ADP Private Payrolls, Jobless Claims, Treasury Supply

Treasury yields are backing up and the equity market is climbing just ahead of the ADP private employment report.

The benchmark 10-year note yield is 2.2bps higher at 3.13% and the Fannie Mae 4.0 MBS coupon is -5/32 at 99-31. S&P 500 futures are 5 points higher at 1,340.75 and the Dow looks to open 31 points up at 12,600. Commodity prices are mixed: light crude oil rose 0.63% overnight to $97.28, while gold prices dropped 0.15% to $1,526.90.

Key Events Today:

8:15 - The ADP Employment Report is anticipated to show the economy created  70,000 private jobs in June, setting the stage for Friday's BLS nonfarm payrolls survey to show 110,000 new jobs in both the public and private sectors. In May, ADP reported just  38,000 new jobs, the smallest gain since September. That was followed by a BLS payrolls gain of 88,000 last month, the weakest in eight months.

According to Thomson Reuters, economists believe more than 150,000 total jobs must be created each month to hold the unemployment report, which is currently at 9.1%.

8:30 - Jobless Claims have been deeply uninspiring recently. New claims have so far averaged 426,000 per week in June, compared with 427,000 in May, as weekly claims have remained above 400k for 11 straight weeks. This week's forecast is 420k, a figure that looks slightly optimistic next to the four-week average of 426,750.

"The claims data suggest that May's lackluster pace of job creation continued into June," said economists at RDQ Economics. "The message of weaker labor market conditions in June than what was seen earlier this year has been corroborated by consumers' perceptions of the labor market and the employment component."

Economists at Citigroup suggested there could be some upside risk to the consensus forecast due to flooding and wildfires in the Midwest and Southwest, coupled with seasonal issues as the school year ends. 

"Continuing jobless claims probably fell by 52,000," they said, noting that tally fell fell 14k to 3.702 million last time. "But the drop was on account of the larger seasonal factor, as unadjusted filings were virtually static during the reference period."

11:00 - Treasury announces the details of 3-yr, 10-yr, and 30-yr debt supply to be sold in the following week

12:30 - Thomas Hoenig, president of the Kansas City Federal Reserve, speaks to the Chickasaw Nation Business and Community Leaders lunch in Ada, Oklahoma.

The June MBS prepayment report will be released tonight.