October rally over, robust service sector hiring, bitcoin drifts below $20k

The economy is too strong for the Fed to pivot. ​ The strong start to October is over after both a private payroll report and service sector data reminded investors how strong some parts of the economy remain. Deteriorating economic data is needed to drive down inflation and for the Fed to consider a slower pace of tightening. ​ If we continue to see resilience in the service sector, the Fed may have to remain aggressive with its rate hiking cycle. ​ ​ ​

Before the end of the year, but definitely not this month, the Fed will temper its hawkish stance. Inflation is still the driving focus and that data is not softening quickly enough.

ADP/ISM Services

A private payrolls report showed 208,000 jobs were created in September, roughly in line with the 200,000 consensus estimate. ​ After a couple of downbeat labor data readings, the ISM manufacturing employment component fell into contraction and JOLTS data lost over a million job openings, Wall Street was starting to grow confident that a labor market slowdown had arrived. ​ Hiring is slowing, but it seems the service sector is still holding up. ​ The ADP report showed the goods-producing sector lost 29,000 jobs, while service-providing jobs showed a gain of 237,000 positions. The ISM Services employment index rose sharply to the highest levels since March. ​ ​ ​

Traders might be disappointed if they were hoping for a sharp deterioration in hiring with the nonfarm payroll report. The early October rally might completely fade if the nonfarm payroll shows steady hiring and continued wage pressures.

Crypto

Reversal Wednesday is here and risk aversion has taken bitcoin tentatively below the $20,000 level. ​ The strong start to October is over and markets were quickly reminded that Fed pivot calls were premature once again. ​ After an ADP employment change report and ISM Services Index, traders were quickly reminded that the economy isn’t falling off a cliff and that the Fed might have to remain aggressive with its rate hiking cycle next year.

Bitcoin’s fundamentals still support a healthy consolidation here and that should remain the case as long as we don’t see a double dose of robust hiring on Friday and much hotter-than-expected inflation next week. ​

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