USD is extending its decline and stocks are holding steady in cautious trade ahead of the US jobs report. Expectations are for 200k jobs to be added in November.
· Fed to slow the pace of hikes so NFP could have less impact than usual
· Unemployment is expected to rise to 3.8%, and wage growth is forecast to slip to 4.6%
· USD/JPY falls to a 3.5-month low and is testing its 200 SMA
Stocks on Wall Street saw a mixed close on Thursday with the Dow Jones and the S&P500 closing in the red while the Nasdaq ended up modestly higher. Sentiment wobbled despite cooler inflation.
Core PCE, the Fed’s preferred gauge for inflation, cooled to 5% YoY in November, down from 5.2%. While this wasn’t a huge decline it was still a move in the right direction. However, it failed to build on the enthusiasm from the previous day, following Fed Powell’s less hawkish stance.
Attention today is firmly on the US non-farm payroll. However, given that Federal Reserve Chair Jerome Powell has already as good as confirmed a 50-basis point rate hike in this month’s FOMC meeting, this non-farm payroll could carry slightly less weight than usual.
Expectations are for 200k jobs to have been added in November; this is down slightly from the 261k recorded in October and down from September 315k, marking the third straight month of falling job creation. Meanwhile, unemployment has slowly been edging higher, rising to 3.7% and may rise again to 3.8%. Wage growth has slowed slightly to 4.7% from 5% and is expected to slow further to 4.6%. Whilst the JOLTS jobs vacancies report showed that there are still a high number of vacancies, this doesn’t appear to be creating a higher wage spiral, a point that the Fed will be pleased about.
Overall the labour market is showing resilience. However, there are signs of weakness seeping in. This week’s ADP private payroll report was significantly weaker than expected. The ADP report is often considered a lead indicator for the non-farm payroll and suggests that there could be further weakness in today’s report.
Big tech layoffs
Anecdotal evidence of layoffs in the tech sector is also rising. Big names such as Amazon and Meta have recently announced large-scale layoffs. Google is also planning a reduction in headcount and Twitter is seeing staff leave voluntarily or otherwise. Big tech downsizing will start to show up in the data, although granted these losses won’t all be from the US.
Hiring can pick up around the holiday period, although firms may be cautious this year given concerns over the health of the consumer.
Market reaction?
So how could the market react to today’s report? After the strong rally in stocks and a heavy decline in the USD following Fed Powell’s speech, any reaction to a within-range report could be muted; the market knows that the Fed is slowing the pace of rate hikes.
While previously, a weaker report would have sparked a rally in stocks, investors could now be looking for a mildly positive goldilocks report supporting slowing inflation with just a mild economic slowdown. This may help the S&P500 hold above the 200 SMA and keep the Dow Jones in a bull market (up 20% from its September low).
USDJPY continues to fall ahead of the report, dropping to 135.00 and 3.5 month low. A goldilocks report could send the pair below the 200 SMA for the first time since February 2021.
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Sources: Bloomberg, CNBC, Reuters
Original article provided by Trading Writers
