Marketmind: Markets freeze for jobless recession gauge
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[December 08, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan
With investors trying to read recessionary warnings from softening U.S.
labor market signals all week, the outsize importance of the November
payrolls report to next week's Federal Reserve meeting has frozen
frenetic markets in advance.
It's hard to imagine the numerous employment soundings this week showing
a loosening of the labor market will be contradicted by the overall
employment report. However, the extent of markets' rate cut euphoria
means it will all be a matter of degrees.
The standing consensus forecasts are for a 180,000 rise in non-farm
payrolls last month, an unchanged jobless rate at 3.9% and a cooling of
annual wage growth to 4.0%.
But this week's private sector jobs report for the same month was below
forecast, weekly jobless crept higher, layoffs are rising sharply, job
openings fell faster than expected for October and employment costs were
revised down.
But a curious twist this month centres the closely-watched 'Sahm rule'
threshold, that has historically shown recession is underway when the
three-month rolling average unemployment rate rises half a point above
the low of the prior 12 months.
Developed by Fed economist Claudia Sahm before the pandemic as a
potential rule of thumb for triggering benefit payments - the gauge hit
0.33% last time out for the first time since March 2021 and could sound
the alarm if November's jobless rate tops 4%.
An added complication reading the report is the ending of the
autoworkers and actors' strikes that have distorted jobless readings
somewhat.
About 25,300 members of the United Auto Workers union ended their
strikes against Detroit's "Big Three" car makers on Oct. 31, which had
depressed manufacturing payrolls that month. Payrolls also likely got a
lift from 16,000 members of the SAG-AFTRA actors union going back to
work.
All of which has markets consolidate the week's strong bond and stock
gains on Friday, driven largely by headlong market bets on Fed easing
next year. Fed futures now see more than a 50% chance of the first Fed
rate cut in the cycle coming by March, two quarter point cuts by June
and 125 bps of easing by the end of next year.
While two-year Treasury yields have been a bit more reserved this week,
10-year yields tested 4.1% for the first time since June - before
backing up about 7 bps today ahead of the jobs report. But the big
swings in Treasuries have spurred volatility gauges to the highest since
October.
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Signage for a job fair is seen on 5th Avenue after the release of
the jobs report in Manhattan, New York City, U.S., September 3,
2021. REUTERS/Andrew Kelly/File Photo
Wall St stock futures were steady before the bell after a strong
rally on Thursday led by tech stocks and a 5% surge in Alphabet
after it said its new artificial intelligence model could help
narrow the gap in a race with Microsoft-backed OpenAI.
The dollar perked up a bit on Friday too, even against the
electrified Japanese yen - which soared almost 4% at one point on
Thursday on a sudden bout of speculation that the Bank of Japan
could tighten monetary policy again as soon as this month.
However, that chatter was dampened by a sharp downward revision to
Japanese economic growth data for the third quarter.
Japan's economy contracted 2.9% - faster than the 2.1% drop first
estimated as the household sector faced growing headwinds and
complicating the central bank's efforts to phase out its super easy
monetary policy.
Dollar/yen pushed back above 144, having hit a low of 141.70 at one
point on Thursday. Tokyo's benchmark Nikkei underperformed largely
firmer world stocks and lost more than 1% on Friday.
The waning U.S. crude oil price - now down 27% since the peaks of
September and encouraging disinflation and rate cut hopes - steadied
and tried to get a toehold back above $70 per barrel.
Key developments that should provide more direction to U.S. markets
later on Friday:
* U.S. November employment report, University of Michigan Dec
consumer sentiment and inflation expectations survey
* ECOFIN EU finance ministers meet on blocs fiscal rules, attended
by European Central Bank board member Luis de Guindos
* U.S. corporate earnings: Hello Group, Johnson Outdoors, HashiCorp
(By Mike Dolan; Editing by Toby Chopra)
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