Markets Recoup Some Early Losses, but Finish Lower…..

U.S. equities finished in the red, but off the lows of the day, as investors sifted through a host of upbeat economic data, while inflation and monetary policy uncertainty persisted. U.S. services sector growth posted more record highs, European output in the sector remained strong, while activity in Asia was mixed. In other economic news, jobless claims continued to decelerate to pandemic lows and ADP’s private sector employment trounced forecasts, ahead of tomorrow’s key May non-farm payroll report. On the equity front, General Motors boosted its guidance for the first half of 2021, NetApp and PVH Corp both topped quarterly estimates, while Delta Air Lines and American Airlines offered some mixed commentary on business conditions. Treasuries were lower, boosting yields, and the U.S. dollar rallied, while gold tumbled, and crude oil prices were little changed in choppy trading. Europe finished mixed following a recent run and amid the strong data on both sides of the pond, while markets in Asia again diverged.

The Dow Jones Industrial Average lost 23 points (0.1%) to 34,577, the S&P 500 Index shed 15 points (0.4%) to 4,193 and the Nasdaq Composite declined 142 points (1.0%) to 13,615. In heavy volume, 1.0 billion shares were traded on the NYSE and 5.3 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.02 lower to $68.81 per barrel. Elsewhere, the Bloomberg gold spot price fell $37.00 to $1,871.38 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rallied 0.6% to 90.47.

May services sector growth remains strong, employment data suggests improvement…..

The May Institute for Supply Management (ISM) non-Manufacturing Index showed expansion in the key services sector (a reading above 50) rose to another record high of 64.0 from April’s 62.7 level, and versus the Bloomberg consensus estimate of an increase to 63.2. The index was bolstered by accelerated growth in new orders and business activity. However, employment growth slowed and prices continued to suggest inflation pressures as the component moved above the 80 mark. The ISM said, “The rate of expansion is very strong, as businesses have reopened and production capacity has increased. However, some capacity constraints, material shortages, weather-related delays, and challenges in logistics and employment resources continue.”

The final Markit U.S. Services PMI Index for May was unexpectedly revised higher to 70.4 from the preliminary estimate of 70.1, where it was expected to remain. The index was up from April’s 64.7 figure and the 37.5 level a year ago. A reading above 50 denotes expansion. Markit’s release is independent and differs from the Institute for Supply Management’s (ISM) report, as it has less historic value and Markit weights its index components differently, while its survey respondents include those that vary more in size, including small and medium-sized companies.

Weekly initial jobless claims came in at a level of 385,000 for the week ended May 29, just below the Bloomberg consensus estimate of 387,000 and the prior week’s downward revision to the 405,000 level. The four-week moving average fell by 30,500 to 428,000, but continuing claims for the week ended May 22 rose by 169,000 to 3,771,000, north of estimates of 3,614,000. The four-week moving average of continuing claims increased by 22,750 to 3,687,750.

The ADP Employment Change Report showed private sector payrolls rose by 978,000 jobs in May, versus forecasts calling for a 650,000 gain. April’s rise of 742,000 jobs was revised to a 654,000 increase. Today’s ADP data, which does not include government hiring and firing, comes ahead of tomorrow’s broader May non-farm payroll report, expected to show headline employment grew by 674,000 jobs and private sector jobs rose by 610,000 after both figures decisively missed in April  The unemployment rate is forecast to decline to 5.9% and average hourly earnings are projected to rise 0.2% month-over-month (m/m) and be up 1.6% y/y.

Final Q1 nonfarm productivity was unrevised at a 5.4% gain on an annualized quarter-over-quarter (q/q) basis, and versus estimates of an adjustment to a 5.5% increase. Q4 productivity was unadjusted at a 3.8% decline. Labor productivity, or output per hour, is calculated by dividing real output by hours worked by all persons, including employees, proprietors, and unpaid family workers, and is a major contributor to the economy’s long-term health and prosperity. Unit labor costs were adjusted to a 1.7% q/q increase, from the preliminary decrease of 0.3%, versus forecasts of a revised 0.4% dip. Unit labor costs were revised noticeably higher to a gain of 14.0% in Q4.

Treasuries were lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 0.16%, the yield on the 10-year note gained 4 bps to 1.62%, and the 30-year bond rate rose 3 bps to 2.30%.

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