The unexpectedly weak 27k May ADP rise -- versus 180k expected -- undermines the Fed's case for delaying rate cuts, leaving the rates-sensitive USD/JPY under pressure that's only partly offset by a bounce in stocks on hopes that the U.S. central bank will come to investors' rescue.
ADP and the more widely watched NFP, due out Friday, diverge from time to time, but over the past nine May readings, the average miss was only 36k when ADP was below NFP, suggesting today's reading ought not be discounted.
ADP said declines in manufacturing jobs, those most impacted by the escalating trade war, were primarily to blame for May's poor reading.
The new data has Fed's Brainard looking more closely at Friday's jobs data , while Evans and others have noted the Fed isn't reaching its inflation target.
The Fed has said the tight labor market might eventually bolster wages and inflation, but PCE data and ADP undercut those predictions.
Huge USD/JPY expiries at 108-109 Thursday may limit USD/JPY falls on tumbling short-term Treasury JGB yield spreads, but next week's big expiries are at 107 and will attract, particularly if Friday's jobs report is weak.
The 61.8% retracement of the post-flash-crash rebound at 107.25 looks pivotal.