ADP's payroll report, the warm-up act for Friday's jobs data, could drive market direction more than usual Wednesday.
One reason is that the payroll-services provider's 8:15 a.m. data come ahead of the auction of $21 billion in reopened 10-year notes, 1 p.m. ET, and stronger-than-expected data could help yields rise, giving a concession to the market. Though not viewed as a true picture of the jobs report, the data have become more trusted among market players recently.
"ADP should be interesting. It seems like it's been pretty consistent with the tone of the BLS payroll data for the last several months," said Tom Simons, money market economist at Jefferies. "I don't necessarily rely on it for making adjustments to the forecast for payroll data, but it does give us some sense of what's going on."
Simons expects ADP to report 200,000 payrolls. He expects 215,000 nonfarm payrolls and an unchanged unemployment rate of 7 percent in the government employment report Friday. The data are key to Fed watchers, as the Federal Reserve uses the monthly report as a key metric in formulating policy.
The December report Friday will be looked at for confirmation of the Fed's decision to wind down its quantitative easing program. More clues to its thinking on QE should be seen in the minutes of its December meeting, released at 2 p.m. ET Wednesday.
"You could potentially get a bullish Treasury surprise if they talk about advancing the threshold on forward guidance," said John Briggs, head of cross-asset strategy at RBS.
At one point, the Fed had said that 6.5 percent unemployment was the point at which it would consider raising short-term rates, but it has since indicated that level should not be viewed as a threshold.
"They could advance that conversation," Briggs said.
Simons is also watching for more information on the unemployment rate.
"It's been clear for a while they've been saying they want to move away from that one indicator ... as the sole determinant for the rate guidance," he said. "It's going to be interesting to see if they are going to develop it further or to dismiss it."
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Simons is also focusing on the breakdown among Fed officials on how they would set the path of slowing purchases in the $85 billion bond-buying program. Many Fed watchers expect to see the Fed pare back at the pace of $10 billion a meeting.
"How many members are looking for continued, measured steps on the way down? How many are really holding fast to that data dependency?" he asked. The Fed has said it would base its wind down on the economic data and could reverse course if the economy weakens.
The 10-year note auction could also be interesting because of the relatively weak 3-year auction. The 3-year was yielding 0.757 percent after a sale of $30 billion notes, at a high yield of 0.799 percent. Bidders offered to buy 3.25 times the amount of debt for sale, a little lower than recent auctions.
The 3-year auction has been a harbinger for the 10-year recently, Simons said.
"It doesn't bode well for tomorrow's auction," he said. "It depends on how the pricing action goes during the day. The thing is an hour before the [Fed meeting] minutes, it's going to be an environment where people won't want to take on a lot of risk. It argues for a little better auction because it might have to go a little cheaper. If there's not enough concession."
The 10-year was bid higher Tuesday, sending its yield lower to 2.945 percent.
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Briggs expects the 10-year auction to get decent demand and probably see a higher yield. ADP will be a factor ahead of the auction, he said.
"One thing I do expect is it will create volatility, especially if it's soft," he said, adding that ADP could also drive the 10-year yield through 3 percent if it is stronger than expected.
Consumer credit is released at 3 p.m.
—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.