US DATA: Payrolls Wrap: December Pause Looks Off The Table
Dec-06 15:29
- The payrolls report was very close to expectations for November alone, rising 227k vs consensus 220k and a primary dealer analyst median of 225k.
- Two-month revisions were at least positive at +56k after the heavy -112k revisions in the October report, but only +24k of that upward revision came in October which could have underwhelmed expectations.
- The average of the last two months as a crude estimate of underlying trend sees nonfarm payrolls growth of 132k and private at 96k.
- A dovish angle can be made as the seasonal factors were particularly beneficial again this month. By our calculations, October would have seen -50k vs +36k if the Oct’23 factor was used instead of Oct’24, whilst November would have seen +147k vs +227k on the same basis.
- The household survey was clearly weaker than the establishment survey, with obvious signs of softness/loosening in labor market conditions. The unemployment rate increased to a 4-month high at 4.246% (+0.1pp, cons 4.15%) and the U-6 rate also ticked up 0.1pp to a 4-month high 7.8%.
- The prime age category drove this increase, rising from 3.53% to 3.68% by our calculations to nudge above 3.65% in July for technically its highest since Nov 2021.
- Whilst the unemployment rate was more dovish than expected, the data leave it continuing to track below the 4.4% the median FOMC member forecast for Q4 back in the September SEP. In Governor Bowman’s words, the unemployment rate remains at a historically low level.
- Indeed, averaging 4.20% in Oct-Nov, it’s currently only just meeting the lowest estimates (from presumably the most hawkish FOMC members) with an entire FOMC range of 4.2-4.5%.
- Nevertheless, there don’t look to be enough signs of strength here to warrant a pause later this month and accordingly Fed Funds futures has jumped to pricing 22.5bp of cuts vs 18bp prior. CPI will have to be extremely strong on Wednesday to see a pause back on the table along with a blackout period steer.
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EUR: FX Exchange traded Option
Nov-06 15:27
EURUSD (expiry Friday) 1.0600p, bought for 0.0005 in 1.23k.
FED: Election Results Could Augur More Cautious Fed Tone (1/2)
Nov-06 15:21
The US election has delivered what appears to be a "Republican Sweep" - and it will have consequences for Fed policy, potentially starting with Thursday's FOMC communications. The overt post-election message Thursday will be that it's business as usual. But we wouldn't be surprised if Chair Powell comes out sounding slightly more cautious that a Dec cut is the base case - because between data and the election, there is likely to be increasing concern on the Committee about the extent of future cuts in light of a shift of economic policy, whether they publicly admit it or not.
- Current market pricing is implies roughly 65% for a December 25bp cut, down from nearly 80% Monday - that still looks slightly high at this point and Powell is increasingly likely to be happy to leave the December question ambiguous. While there is near-unanimity on the Committee that policy is inappropriately restrictive and needs to be dialed back, the first couple of moves are the easiest, with the neutral level only understood over time.
- Prior to the election this appeared to now basically mean cutting 25bp in November and 25bp in December, even if the unemployment rate isn't rising as much as the FOMC thought it might back in September.
- But the election may give some more room for pause (literally). As we noted in our election market scenarios piece yesterday, "Trump presidency = higher likelihood of trade tariffs and (extended) tax cuts = higher inflation/growth = relatively tighter Fed policy, higher rates, stronger USD ... amplified by a "Clean Sweep"."
- Of all the market moves since the election results became clear overnight, one of the more subtle is how limited the reassessment of the near-term Fed rate path has been, even as longer-end yields have risen sharply. Terminal rates are now seen in the 3.50-3.75% range in 2026, or roughly 125bp of cuts from today. That's only about half of a 25bp rate cut removed from the path through 2026, vs Monday.
- This may yet prove to be too modest a re-pricing and could go further. To be fair, futures currently reflect an 80bp repricing higher vs pre-September FOMC, from which point onward Trump/Republican winning odds were improving. And this is above the Dot Plot-implied end-2025 (3.25-3.50%) / end-2026 (2.75-3.00%) / longer-run (2.9%) median rates.
- But recent data suggested economic resilience probably was giving some FOMC members cause to reassess their rate paths to the upside (for 2025, 8 members were 3.00-3.25% or below in September, with 11 above), and we would have expected that median to be solidified at future meetings, if not raised. They won't be able to overtly mention how future government policy considerations are driving such a move, but the solid incoming economic data itself could provide sufficient cover.
EQUITY TECHS: E-MINI S&P: (Z4) Pierces Key Resistance
Nov-06 15:16
- RES 4: 6012.75 1.00 projection of the Aug 5 - Sep 3 - 6 price swing
- RES 3: 6000.00 Psychological handle
- RES 2: 5961.00 1.00 projection of the Sep 6 - 17 - 18 price swing
- RES 1: 5929.75 Intraday high
- PRICE: 5911.25 @ 15:05 GMT Nov 6
- SUP 1: 5816.41/5724.25 20-day EMA / Low Nov 4
- SUP 2: 5675.25 Low Sep 18
- SUP 3: 5637.60 38.2% retracement of the Aug 5 - Oct 17 bull cycle
- SUP 4: 5600.25 Low Sep 12
S&P E-Minis have recovered from their recent lows. A key short-term support has been defined at 5724.25, the Nov 4 low. Price is trading above both the 20- and 50-day EMAs and the continuation higher has resulted in a breach of the bull trigger at 5927.25, the Oct 17 high. Clearance of this level confirms a resumption of the primary uptrend and opens 5961.00, a Fibonacci projection. A breach of 5724.25 is required to reinstate a bearish threat.
