Treasury prices dropped sharply on Wednesday as investors ignored the somber ADP release, which surprised analysts by reporting a contraction of 10,000 in the U.S. labor market. Instead, market participants focused on the ISM manufacturing number, which showed that business activity in that sector rose more than anticipated to 56.30; analysts had expected a reading of 52.8. The Dow Jones rallied significantly after 2 consecutive losing sessions and gained 254 points to close at 10,269. Consequently, the 2-year note declined 2/32 to yield 0.50% while the 5-year note dropped 11/32 yielding 1.40%. The benchmark 10-year Treasury declined 29/32 for a 2.57% yield. Finally, the 30-year bond dropped 2 and 16/32 points to yield 3.65%.
The Treasury market continues to trade lower this morning as investors react to the Nonfarm Productivity and Jobless Claims reports. The 5-year note has dropped 4/32 to yield 1.42% while the 10-year Treasury has declined 10/32 yielding 2.61%. Meanwhile, the 30-year Treasury bond is trading 22/32 lower to yield 3.68%. The Nonfarm Productivity report, which measures the change in productivity as a measure of hourly output per worker, declined by 1.80% in the second quarter of 2010; the previous estimate for the second quarter showed a decrease in productivity of only 0.90% for the same period. This drop in productivity, the first one since the last quarter of 2008, was partially attributed to a further slowdown in the output component from the previous estimate of 2.60% for 2Q 2010 to 1.60%. Unit labor costs, which measures labor costs per unit of output, was also released this morning with an increase of 1.10% for 2Q 2010; the previous estimate for the quarter only showed a 0.20% increase for the same period. While lower productivity could affect companies’ profits on a short-term basis, it could also represent an eventual increase in hiring.
The Treasury market continues to trade lower this morning as investors react to the Nonfarm Productivity and Jobless Claims reports. The 5-year note has dropped 4/32 to yield 1.42% while the 10-year Treasury has declined 10/32 yielding 2.61%. Meanwhile, the 30-year Treasury bond is trading 22/32 lower to yield 3.68%. The Nonfarm Productivity report, which measures the change in productivity as a measure of hourly output per worker, declined by 1.80% in the second quarter of 2010; the previous estimate for the second quarter showed a decrease in productivity of only 0.90% for the same period. This drop in productivity, the first one since the last quarter of 2008, was partially attributed to a further slowdown in the output component from the previous estimate of 2.60% for 2Q 2010 to 1.60%. Unit labor costs, which measures labor costs per unit of output, was also released this morning with an increase of 1.10% for 2Q 2010; the previous estimate for the quarter only showed a 0.20% increase for the same period. While lower productivity could affect companies’ profits on a short-term basis, it could also represent an eventual increase in hiring.
The Department of Labor’s release on weekly Initial Jobless Claims report showed that first time claims were lower than expected at 472,000 versus analyst’s estimates of a 475,000 increase. The Continuing Claims report came in lower than in the previous week but slightly higher than expected at 4.456 million versus the anticipated 4.450 million. The more stable 4-week average number of Initial Claims also registered a slight decrease of 2,500 to reach 485,500. Market participants will now wait for tomorrow’s change in Nonfarm Payrolls and Unemployment Rate where analysts estimate that last month’s unemployment level will increase to 9.60%.
Later this morning we will get the release of the Factory Orders report, which shows comprehensive data on manufacturers' shipments, inventories, and orders (including non durable items) and is scheduled to be released at 9:00 am CDT. Analysts are expecting factory orders to increase 0.20% in July following the previous month’s 1.20% increase. Finally, Pending Home Sales, which tracks the number of home resales under contract, will be released at the same time with an expected decrease of 1.00% for July. The pending home sales report is relevant as the majority of these sales become existing home sales one or two months later. Therefore, this index is often used as a gauge to predict future home sales activity.
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