ADP Report: Game Changer For Markets?

Stocks are getting a bounce on ADP's jobs report,which already has some on Wall Street revising their view on the government jobs report due Friday and is adding to the debate on what the Fed will do next week.

The ADP National Employment report, released this morning, showed a surprisingly strong gain in November private sector jobs of 189,000. Importantly, the ADP report also shows below trend declines in manufacturing and construction jobs. The report is viewed as somewhat of a preview to the government jobs report though it has not always accurately reflected the number.

The government employment report is expected by economists to show just a 77,500 increase in payrolls. "I think the ADP report itself is a total game changer, at least through Friday," says CNBC senior correspondent Steve Liesman.

The jobs data is expected to be key in the Fed's decision making process on interest rates at its meeting Dec. 11 so a new outlook on jobs data could also bring revisions on expectations for Fed easing. The debate about rates picked up momentum this morning.

The market has increasingly been expecting a half point rate cut and a bullish jobs report, showing a stronger than expected economy would allowing the Fed to move less aggressively. The dollar added to earlier gains on the ADP numbers and selling in Treasuries lifted the yield on the 10-year to 3.928 percent and the two-year to 2.97 percent.

New View
At least two economists changed their jobs forecast after the ADP data. Deutsche Bank's Chief U.S. Economist Joseph LaVorgna said he increased his forecast for payrolls and modified his rate outlook. "This series is particularly useful in forecasting payrolls, so we have decided to lift our forecast from +75k to +125k. This lowers the chance of a 50 bp cut from the Fed. Consequently we are looking for a 25 bps cut in the fed funds rate and a directive that hints of more easing," said LaVorgna in a note this morning.

Lehman Brothers changed its outlook for November non-farm jobs to 125,000 from 90,000.

The Labor Department this morning also reported revised third quarter non-farm output rose at the most rapid pace in four years, and unit labor costs showed the biggest decline in four years. Third quarter productivity rose 6.3 percent and labor costs fell 2 percent.

Meanwhile, Pimco's Bill Gross, oftimes a market mover, commented today in his 2008 outlook. He said that 3 percent would be a reasonable fed funds target given current conditions. Gross will appear on "Street Signs" this afternoon.

Oil Drill
Oil is perking up on the lack of action by OPEC at its meeting today in Abu Dhabi.OPEC held production levels unchanged despite talk of a possible increase in output of 500,000 barrels per day. Oil crossed the $90 per barrel level temporarily but backed down though is still trading higher. Inventory data, reported at 10:30 a.m., could be a factor.

CNBC Europe's Steve Sedgwick snared an exclusive live TV interview with OPEC President Mohammed bin Dhaen al-Hamli in Abu Dhabi:"...difficult is how we look into the future. The economy of the world is not really clear at this time, but as far as supply and demand of crude and inventories are at a comfortable level. We are unable to look from now until January and that's why we decided to meet the first of February and look at the market situation," the OPEC president said on "Squawk Box." "If the market needs more oil, we will be happy to add more."

M.F. Global senior vice president John Kilduff said the U.S. intelligence report that Iran's is no longer working on nuclear weapons did OPEC's job for it, taking away its need to pump up output. "The intelligence estimate threw the calculus up in the air. Now they lose a lot of the security premium as a result," said Kilduff, a CNBC contributor. "They are going to be able to argue in the coming days that a lot of the speculation is coming out of the market."

"Now oil is going to turn on the interest rate decision that's coming down the pike here, and the jobs data will be huge. If we finish the week over $90, the $100 mark is going to be back on the table," Kilduff said.

Subprime Tsunami
Sen.. Hilary Clinton, D-N.Y. makes comments at 2 p.m. EST on the subprime mess and her view of what should be done about it. She will speak exclusively with CNBC's Maria Bartiromo on "Closing Bell."

Company News
This morning, CIBC cut earnings estimates on Citigroup,Morgan Stanley and JP Morgan. According to the Wall Street Journal, New York Attorney General Andrew Cuomo has also subpoenaed several firms for information on the sale and packaging of mortgage-related securities.


AIG today said its exposure to consumer finance and mortgage insurance were "manageable" and that the possibility its financial units would sustain a loss is "close to zero." CEO Martin Sullivan made the c comments to investors this morning. The stock is moving higher.

Bristol-Myers is expected to report at midday on its plans to reduce manufacturing capacity and personnel. CNBC's Mike Huckman is covering the story.

Questions? Comments?