US DATA: Huge Downward Revisions For Payrolls Set The Tone

ADP employment surprisingly fell in June as it continued a trend of clear moderation in recent months compared to what has been a steadier trend for private payrolls up to May ahead of tomorrow’s NFP release. Declines were led by two sectors in particular, one of which has had a strangely weak relationship with BLS payrolls, but it’s still a soft report no matter how you look at it. 

• ADP private sector employment was much weaker than expected in June as it fell -33k (sa, cons 98k) along with last month’s soft print confirmed with a downward revision to 29k vs the initial 37k.
• The decline was led by professional & business services (-56k after -13k, its sharpest decline since Feb 2023) and education & health services (-52k after -16k, its sharpest decline since Jul 2020).
• The typically cyclically insensitive education & health services component is showing an increasingly puzzling disconnect with NFP industry data although the weakness in professional & business is more concerning from a direct readthrough for tomorrow’s NFP print.
• Financial activities rounded out the third sector with net job losses in June, -14k for its first decline since Sep 2024 and its largest decline since Dec 2022.
• To the upside, leisure & hospitality continued to fare well, rising 32k after 43k and showing no sign of reduced discretionary demand in those sectors.
• There isn’t a clear-cut story for job losses by firm size although the very smallest did suffer the most. Those with 1-19 employees saw -29k after -8k, 20-49 employees saw -18k after -5k and 250-499 -27k after -7k, whilst those with 50-249 saw +12k after +53k and 500+ +30k after -4k.
• The -29k drop in those with 1-19 employees is the sharpest since Mar 2022. 

• Block, 5,938 SFRU5 96.00/96.25/96.50 call flys, 4.0 vs. 95.985/0.15%
• Block, 5,750 0QN5 97.18 calls, 1.5 ref 96.90

For context, the current 21bp move higher in 30-Year gilt yields would represent the biggest one-day move seen since April, when perceptions surrounding the UK’s fiscal fragility pushed yields higher.

• Outside of that, you have to go back to ’22 to see a bigger one-day move higher in the benchmark.
• Markets are not buying PM Starmer’s support for Chancellor Reeves at this stage, nor suggestions that Reeves’ tears in the Commons were linked to a personal matter, with any relief rallies sold into and short lived.

Fig. 1: Net 1-Day Change In UK 30-Year Gilt Yields (bp)

Source: MNI - Market News/ Bloomberg Finance L.P.