Stocks waver as traders pare back expectations for Fed rate hikes

• Disinflation Trends might be back as prices paid plunged 9 points in the ISM manufacturing report
• ADP Report: Pay growth is slowing substantially
• Still waiting on layoff announcements to hit jobless claims data

US stocks are rising after some dovish Fed speak and as the House was able to advance the debt ceiling bill to the Senate. ​ So far everything with the debt ceiling deal is going as planned after both the House Rules Committee and House of Representatives did their part to get this bill closer to President Biden’s desk. Last night’s House vote showed one of best bipartisan votes in history as 165 Democrats and 149 Republicans supported the bill. ​ The deal is now in the Senate’s hands and the question is not if they will pass the bill but on when they will get it done. Majority Leader Schumer noted they are trying to get it done as soon as possible. ​ A vote could happen today as lawmakers signal they are going to try to restrict amendments. ​ ​ ​ ​ ​ ​

The latest Fed speak was rather dovish as Jefferson and Harker voiced support for skipping a rate hike at the June meeting. ​ The Fed Whisperer Timiraos also noted that the FOMC is likely to hold rates steady in June. ​

Wall Street decided to shrug off a hot ADP report and another low jobless claims print and focus on a lower final reading on unit labor costs. ​ The labor market is still looking strong, but perhaps we are seeing some signs that wage growth is gradually falling. Treasury yields rose on ADP, but tumbled after a near 2-point downward revision with labor costs. ​ ​ ​

US Data

Private payrolls posted another robust beat as employment increased by 278,000 in May, much higher than the 170,000 consensus estimate and slightly lower than revised 291,000 prior reading. The ADP report noted, ““Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring.”

The 830am economic data drop showed jobless claims remain anchored for now and that first quarter unit labor costs were revised significantly lower. ​

The ISM manufacturing report was somewhat mixed as prices paid tumbled to contraction territory, export orders were stable, and new orders along with the backlog of orders remained rather depressed. ​ ​

The key takeaway from the ADP report and unit labor costs is that wage pressures are showing clear signs of weakness, and this is supporting the argument for the Fed to skip the June meeting. ​ The ISM report is showing that the manufacturing space is getting close to finding a bottom as commodity prices come down and as lower prices should bring back buyers. ​

The NFP report might not show a significant weakening in the labor market, but the downward trend should be in place. ​

S&P 500 Daily Chart

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