Daily Clueless Musings 6/01

The ADP employment report estimated that merely 38k private-sector jobs were added in May. This was the softest reading for the ADP report since QE2 started. ADP had a pretty good track record predicting NFP in the recent month. ADP reported that 175k jobs per month were added between October and April, while the BLS reported that 185k over the same time period. Today's number bodes ill for the NFP. However given the recent volatility in labor market to the impact of natural disasters, NFP could be significantly different from the ADP guesstimate, because ADP employment report incorporates data during the week prior to the BLS’s payroll survey week. The average initial jobless claims for the weeks covered by ADP report is 24k higher than those surveyed by BLS. PMI are softer across the world. China reported a reading of 52 in May, down 0.9 from April. The Euro area manufacturing output PMI is estimated to have fallen 4.9-pts to 55.2 in May. US PMI was at 53.5% in May, sharply down from 60.4% in April. The new order, production and back order indexes are all down at a faster pace than the inventory, implying more future softness. Greek debt was once again downgraded to Caa1 from B1. Again, at this point the question is not whether Greece is going to default but when it will default and who will take the loss. Eurodollar futures rallied and vols are smashed. However the front contracts seem to have priced in worse possible scenario and unable to rally on the surprisingly bad number. Paper continue to put on bullish trades on green futures. Small green calls got cheaper even as futures rallied more than 10 ticks, as paper bought call green 1x2s.