Stocks, bonds and the USD are little changed ahead of the key US labor market report, which will shed light on whether the labor market is cooling fast enough to bring the Federal Reserve closer to a rate cut.
The non-farm payrolls (NFP) report and unemployment figures will be crucial in determining whether bets on a sharp easing of Fed policy next year are justified – or whether they have gone too far. With signs of cooling inflation and wage growth, traders have been betting that rate cuts of 125-150 basis points are on the cards over the next 12 months.
This week's labor market data, from JOLT job openings to ADP payrolls to yesterday's jobless claims, have reinforced expectations that the US labor market will continue to cool. However, today's labor market report will be most in focus. We expect the NFP data to confirm signs that the labor market (and thus the US economy) is cooling. However, most of this is already priced in, so there is little scope for further dramatic gains in stocks and bonds – especially as the current rally is already very advanced.
S&P 500 contracts fell slightly after a tech-led rally in the previous session. Yields on 10-year government bonds approached 4.2%, rising for a second day. The dollar trended slightly weaker. Following further signs of a cooling labor market and a rise in unemployment in the US, all of these assets could initially move in the opposite direction (=weaker USD, lower yields, gains for stocks, bonds, commodities)
The likely cooler labor market report is a welcome sign for employers struggling with wage pressures and finding the right candidates – it will also reduce wage inflation, which is crucial for the Fed. However, the impact on markets will depend on whether investors see the data as a springboard for a March rate cut and a soft landing, or as a negative impact on consumer spending and a more pronounced economic slowdown.
I still think rate cuts in March are unlikely and markets are underestimating that a weakening economy will initially reduce corporate profits and sales growth.
👁 ROB'S MARKET OVERVIEW:
⚠️ We expect more signs of a cooling labor market from NFP data.
December 08, 2023
🌐/🇺🇸 Global/US Markets ↗️/↕️/➡️ (initial gains for stocks after NFP data confirms cooling labor market, however, gains limited and cooling labor market already priced in / likely profit taking at end of session)
💱 Forex
AUD, CAD ↗️/➡️
JPY, CHF ➡️/↗️
EUR, GBP ➡️/↘️
USD ↘️/➡️ (first headwinds on cooling labor market, USD remains in demand, investors too optimistic about rate cuts)
⚒ Commodity Markets ↗️/↕️
Oil prices ↗️/↕️
Natural Gas prices ↕️
Metal prices ↗️/➡️
Gold ↕️/↗️ (benefiting from rate cut optimism remaining intact)
⚡️Cryptos ↕️/↗️ (benefiting from rate cut optimism remaining intact)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Your Robert
