Newsquawk US Market Wrap: Stocks and bonds rise as traders bolster rate cut bets post NFP

MARKET WRAP

At the time of writing, US indices are firmer, as are Treasuries, both buoyed by the US jobs report. Recapping, the headline rose to 227k (exp. 200k, prev. 36k), unemployment rate ticked higher to 4.2% from 4.1%, in line with the Refinitiv consensus, while the labour force participation rate edged lower to 62.5% from 62.6%. Overall, we saw a net dovish reaction as the report is likely not strong enough to sway participants away from a 25bps cut in December given Waller’s comments earlier in the week where he said he leans towards a cut. Highlighting this, money markets now price in a ~88% chance of a cut vs. ~72% prior to the data. In wake of the payrolls print, the Dollar Index saw weakness and hit lows of 105.41, to the benefit of G10 peers with the Yen the main beneficiary, but it has since pared the weakness as it finished the European session with slight gains. Elsewhere on the data docket, the prelim UoM survey for November saw the headline rise above expectations with the internals mixed - Expectations dipped while conditions soared. 1yr ahead inflation expectations jumped to 2.9% from 2.6% and 5yr ahead ticked lower to 3.1% from 3.2%. Sectors are mixed with Consumer Discretionary and Communication Services the clear gainers, while Energy and Utilities lag, with the former weighed on by weakness in the crude complex. WTI and Brent are lower by roughly 1.3% and on USD 67/bbl and 71/bbl handles, respectively.

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US

NFP: Headline NFP rose by 227k jobs in November, above the 200k consensus and up from the prior revised 36k. The November data added back the jobs lost from Hurricanes and Boeing (BA) strikes in the October release, which analysts estimated to be around 110k. Implying the net addition for November of c. 117k, a sign of a still healthy labour market, but slowing from the overheating. The participation rate eased slightly to 62.5% from 62.6%, with the unemployment rate ticking up to 4.2% from 4.1%, in line with the Refinitv consensus, but above the 4.1% consensus at Bloomberg, with the unrounded figure at 4.246%, a shade under 4.3%. The wages data was a touch hotter than expected, but the recent Fed Minutes noted that some participants observed that wage increases were unlikely to be a source of inflationary pressure in the near future. The headline beat is likely not enough to deter the Fed from a 25bps rate cut in December, while the uptick in the unemployment rate likely supports such a move but it is still beneath the September median forecast of 4.4%, which also had the median 2024 dot plot at 4.4% (4.25-4.50%), vs current fed funds target range of 4.50-4.75% - forecasts are set to be updated in December. Markets started to price the certainty of a 25bps rate cut with more certainty after the jobs report, with markets now 87% priced for a 25bps rate cut in December vs. 72% pre-data. It is worth noting that CPI and PPI data are still due before the meeting, and Fed's Goolsbee said in wake of the jobs report he does not want to pre-commit as there is still data to digest before. Following the data, Oxford Economics writes that there "is nothing in the report to change our call for the Federal Reserve to lower rates by 25bps at the December 18 FOMC meeting, but we expect the FOMC to proceed more cautiously in 2025 and skip cutting rates in January."

MICHIGAN: The UoM prelim consumer sentiment survey for December rose to 74.0 from 71.8, above the expected 73.0, although the breakdown behind the headline was mixed. Highlighting this, current conditions soared to 77.7 (prev. 63.9) while expectations fell to 71.6 from 76.9. On the former, the report notes a surge in buying conditions for durables led Current Economic Conditions to soar more than 20%. It further added that rather than a sign of strength, this rise in durables was primarily due to a perception that purchasing durables now would enable buyers to avoid future price increases. On inflation expectations, year-ahead rose to 2.9% (prev. 2.6%), the highest reading in six months but within the 2.3-3.0% range seen in the two years pre-pandemic. Meanwhile, long-run inflation expectations edged down from 3.2% to 3.1%.

BOWMAN: The Fed Governor said she does not take a dissenting vote on policy lightly, and inflation is the biggest priority when making policy decisions. She wants to proceed gradually and cautiously with rate cuts, and added that lowering the policy rate too quickly could reignite inflation. Bowman stated that the unemployment rate is still "well below" full employment level and labour market data has gotten harder to interpret. On inflation, she noted core is still "uncomfortably" above the 2% target and upside risks are prominent. Looking to the December Fed meeting, Bowman said that the inflation data next week will help make a decision on rates. In later remarks, she added she is concerned if Fed cuts too much, could overheat the economy and the economy's performance questions view that policy is restrictive.

GOOLSBEE: The 2025 voter said that the 227k jobs number is big but you need to look at averages, and on averages it feels like the jobs market was cooling from a very hot level to something like sustainable full employment. Goolsbee wants it to stabilize there. In the last few months the job numbers felt like a sustainable and full employment place. Further on the dataset, the Chicago Fed President added measurements such as the ratio of vacancies to the number of unemployed people show the balance in the job market. Ahead, Goolsbee will not pre-commit to the December decision and is still awaiting CPI and consumer spending.

FIXED INCOME

THE DAY: Treasuries meandered overnight before marginal downside was observed in the European morning as attention turned to the NFP report. The headline beat expectations at 227k while wages were also above forecasts. The jobs number seems high on the headline, but it added back c. 110k jobs that were lost in November, so it is still growing at a reasonably healthy pace. T-Notes hit a low of 110-28+ in a knee jerk reaction to the data before immediately reversing higher alongside an uptick in the unemployment rate and as traders concluded that this report does little to knock the Fed off course for cutting by 25bps in December. T-Notes went on to hit a high of 110-20+ c. 1 hour later. Nonetheless, T-Notes moved off highs in wake of the UoM Consumer Sentiment survey, which beat expectations with a notable rise in current conditions, although this was offset by a drop in expectations. The inflation expectations were mixed, which saw the 1yr rise to 2.9% from 2.6%, while the 5yr fell to 3.1% from 3.2%. Attention next week turns to US CPI and PPI.

STIRS

CRUDE

Crude oil prices extended on losses with prices lacklustre after the prior day's choppy performance amid the deluge of OPEC+ updates, with price action today largely one way despite a lack of obvious drivers, with little action seen on the US jobs data, while energy traders await the Baker Hughes Rig Count. WTI Jan'25 resided between USD 66.71-68.49/bbl and Brent Feb'25 within USD 70.85-72.19/bbl parameters.

EQUITIES

EUROPEAN CLOSES: DAX: +0.21% at 20,409, FTSE 100: -0.55% at 8,304, CAC 40: +1.31% at 7,427, Euro Stoxx 50: +0.56% at 4,979, AEX: -0.31% at 892, IBEX 35: -0.45% at 12,064, FTSE MIB: +0.40% at 34,764, SMI: +0.03% at 11,780, PSI: -1.18% at 6,336.

EARNINGS:

STOCK SPECIFICS:

US FX WRAP

The Dollar was on the backfoot into the November NFP report, with losses extending as the Index hit a low of 105.41. Weakness was likely due to the Unemployment Rate rising to 4.2% in contrast to the Bloomberg expectation of being unchanged at 4.1%, coupled with the headline at 227k which wasn't enough to put participants of a 25bps cut in Dec. given Waller's comments earlier in the week where he said he was leaning towards a cut. Subsequently it led to a repricing in Fed expectations for the December meeting, which now puts an 87% chance of a 25bps rate cut, up from the 72% pre-NFP. Due to the Fed repricing, the chances of next week's CPI and PPI report swaying the Fed's December decision have diminished, but still remain of paramount importance. Note, Fed's Bowman hit the wires, echoing her hawkish stance, with remarks postulating she may dissent again.

The CAD strengthened initially on the Canada jobs report, before selling off, where employment rose by 50.5k (exp. 25k), the most in seven months. Conversely, the Unemployment Rate surged to 6.8% (exp. 6.6%, prev. 6.5%) accompanied by the labour participation rate rising to 65.1% (prev. 64.8%). As a result, money markets now see an 81% chance of a consecutive 50bps rate cut next week (prev. 56% pre-data), allowing the USD/CAD to continue towards 2024 highs.

For the Euro, markets continue to await the specifics of French PM developments, where French Socialists look to willing to work with Macron on the condition left-wing policies are enacted. On the ECB, pricing supports the case for a 25bps rate cut next Thursday (84% chance vs 16% for 50). In the near term, the Euro will likely remain susceptible to US data with CPI due next week as well as continued updates from France. Separately, Final EZ Employment and GDP figures for Q3 were left unchanged.

The Yen weakened overnight, with USD/JPY peaking at 150.69, failing to gather strength from Household Spending beating expectations on both fronts, as well as remarks from Japan's main Opposition part, which noted "BoJ should normalise monetary policy, stop persisting on its 2% inflation target), and a weak Yen has a negative impact on the economy and households. JPY, however, caught a bid on the NFP report amid the aforementioned Dollar weakness.

EMFX: As expected, the RBI kept its Repurchase Rate at 6.5%, favoured by 4 out of 6 members, while the neutral stance was maintained unanimously. At first, USD/INR was muted towards the Cash Reserve Ratio being cut by 50bps to 4.0%, although, INR strength came once the RBI announced they are to increase the interest rate ceilings on FCNR-B deposits. Later, commentary was seen from RBI's Das, where the Governor said the MPS is committed to restoring growth in inflation balance, though expects tight liquidity in the next few months; there is a possibility of an increase in currency in circulation.

06 Dec 2024 - 17:14- EquitiesData- Source: Newsquawk

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