CrowdWisers™August ADP and the lead up to BLS ?3
09:42 02-Sep-26
The ADP report for August headlined at +38K jobs, which is well below expectations around +47K. That number might considered good for stocks in that it would support the Fed holding or easing its rates, if the Fed paid attention to ADP. Warsh has talked about giving more weight to private data, but nobody really knows exactly what the Fed will be using going forward at this point. That situation is unsustainable over the medium term, and presumably there will be more definition when Warsh has something meaningful to say about his task forces. Getting back to ADP, the deceleration in wage growth is more concerning, and would also support a hold or easing, yet after a dip, the chances of a hike remain around 2-1.
That's because the market is more likely to pay attention to T-note yield above 4.81% this morning. CrowdWisers had predicted that crossing above 4.8% could be a significant tipping point for market sentiment. Consequently, the next potential pivot remains the treasury note and bond auction results scheduled for the 9th and 10th, with offering amounts to be determined tomorrow. Nobody in the administration will admit it, but the results of those may have more impact on determining whether or not Warsh & company remain delusional and point to an unemployment rate that is only low because the labor market is frozen and under-supplied, at least by humans. Ultimately, these problems simply can't be solved by the Fed. That can only be done by a functional Congress enabling drastic policy change.
For more color, here's slightly redacted background from CrowdWisers on the juxtaposition of AI developments and policy:
On 8/31/26 10:35 AM, Esekla wrote:
In the meantime, the market yield on ten-year T-notes is above 4.75%; I expect significant media attention if it pushes above 4.8%.
On 8/28/26 12:53 PM, Esekla wrote:
As anticipated, the market seems to have shifted its stance almost 2-1 in favor a rate hike, which should help mitigate treasury auction demand a bit, but worsen the underlying deficit issues. To wit, yesterday's 7 year auction showed the best demand but also the most expensive yield even on a term-adjusted basis. However, I theorize that even on the demand side, yesterday was strongest simply because of Bessent's bogus statement of intent to sell more short duration debt. Ultimately, there is little reason to believe him as the Treasury Department will sell to whomever cuts the cheapest deal with the devil as America seeks a middle road between inflating away its debt and avoiding severe recession.
A rate hike might also give the illusion of Fed independence, but diesel prices approaching their all-time high of $5.81 mean there is even less reason to believe Warsh statements about delivering price stability. The geopolitical factors (increased use, coupled with constrained shipping and refining due to war) that caused that record appear worse today. This may be why ---- is one of the few stocks bucking today's downward bias. More importantly, the Fed Chair's promises are meaningless because he puts no timeline on them, and even if he did and delivered, I reiterate that never correcting for temporary spikes results in cost of living increases that are a multiple of the 2% target.
On 8/28/26 10:30 AM, Esekla wrote:
I am currently listening to Warsh speak, but I've conducted an initial review of the full text and it doesn't change much. The emphasis on AI implies that the government may continue to prop up such investments while the current regime lasts. His final section on the current economy indicates that he'll continue to gloss over an under-supplied and frozen labor market. He offers no update on the Fed's past reasoning or any progress from his task forces. That said, I think the market will parse his words with a short term that view that we'll see a rate hike at the next meeting, and indeed, FedWatch is already back above 45% after a recent bottom below 36%. We'll see what actually happens.
I've also had a look at an open letter from more than 100 companies, including Google and Lumen, about cybersecurity. It is similarly disconnected from reality. The only thing that matters on this topic is sound coding and deployment practices and that responsibility rests solely with managers who have always ignored practices that would provide true security in favor of those that might provide quick growth.
On 8/28/26 8:55 AM, Esekla wrote:
We also just got word of Nvidia freezing its revenue sharing and credit support agreements. This is supposedly due to antitrust concerns, but it also comes as public backlash in America and probes into chip smuggling to China gain traction. As with almost everything else, the market looks ready to shrug this off, but I don't think it should. Nvidia has been the primary conduit for the circular investments that I've been warning about for a year now, and those investments seem to be propping up much of the rest of the economy.