Daily Market Pulse

Payrolls grew by 199,000 last month, after increasing 150,000 in October, while the unemployment rate dropped to 3.7%. Estimate was +185,000. Increase in participation rate to 62.8%, and the household survey was very strong. This strong number is signaling to the market potential of less easing in 2024.

Fund managers pulled $4.8 billion from Treasuries this week, which was the biggest weekly outflow since August, 2022, according to EPFR Global data. The resolution of the United Auto Workers strike will likely have boosted payroll data, but the strong household survey is more revealing.

Today’s strong report is crucial for the markets to evaluate whether bets on Fed policy easing next year are justified, or have possibly gone too far. Inflation and wage growth have been slower, which originally increased odds of rate cuts, but most of that sentiment is being unwound as we write. This demonstrates the market was getting overexcited about how fast the Fed can move to cut rates.

Overall, the report shows a tight labor market even though some of the components were mixed. Remember, we will be in an election year and the Fed will not want to be seen political in any way ahead of the elections. Rates are high relative to where most think inflation is headed, which means todays jobs data will likely set the tone for Q1.

EUR Down .3% pre-NFP & down another .2% post the number and 1.2% lower this week which is the biggest drop since July. Volatility has been holding up despite some selling flows leading up to the NFP number. Considering the low volatility and sluggish trading volume, market will likely continue to trend as we digest the full report.

GBP Slipped .3% lower and simultaneously implied volatility (measure of uncertainty) rose to the highest levels since March. Mortgage rates dropped below 6% for the first time since June, providing some hope that the worst of UK home loans crunch may be nearing an end. Rates have been slowing falling since August due to both falling inflation and central bank rate hike pauses. Households have been under severe strain this year from mortgage rates that hit a 14 year high. A report by KPMG noted almost 25% of UK mortgage holders were thinking of selling and moving to lower cost properties due to the higher financing costs.

CAD Slightly stronger post NFP and after comments from deputy governor Gravill on Thursday and the crude oil price rebound from a five-month low. The jobs data will dictate near term direction. US yields still exceed CAD by 53 basis points, and the 10 year by 84 bpts in favor of the US.

JPY Strengthened ~2% vs the US dollar Thursday, and another .5% overnight following hawkish commentary from BOJ Governor Kazu Ueda and one of his deputies. Governor Ueda told lawmakers in parliament that his job was going to get more challenging from the year-end, helping fuel speculation of a near-term rate hike. The most significant central bank commentary, however, came from Deputy Governor Ryozo Himino, who made hawkish comments for the first time, playing down the adverse effects of a potential rate hike. Himino’s speech alluded to positive impacts of financial policy normalization for households and financial institutions, while mentioning the possibility of BOJ action without satisfying all of these conditions.