By Michael Brown Senior Research Strategist at Pepperstone
DIGEST – Markets traded in choppy, if marginally risk-off fashion, yesterday, after the November US jobs report pointed to the labour market continuing to stall. Today, UK inflation highlights the docket.
WHERE WE STAND – I’m going to throw it out there, ‘Jobs Day’ is probably the biggest damp squib in financial markets.
Years ago, yes, the monthly US labour market report did cause huge volatility; even a decade ago when I started kicking around you’d see some decent moves, that held, in the aftermath of the data dropping. Now, though, barring a huge outlier print, any market moves we do see in the immediate aftermath of the figures tend to be given back in an hour or so – actually, seven minutes, in the case of G10 FX and the November jobs report out yesterday.
In terms of that report, headline payrolls rose +64k in November, after a shutdown-induced 105k decline in October. Unemployment, meanwhile, rose to a cycle high 4.6% last month, though a chunk of this was down to a further increase in labour force participation, to 62.5%. Amid all that, wage pressures remain well-contained, with average hourly earnings rising 0.1% MoM/3.5% YoY, hardly posing a worry in terms of upside inflation risk.
I guess the most interesting part of November’s jobs report was the composition of those job gains, with the healthcare sector again propping things up, adding 64k jobs in the month. In other words, if the US population weren’t aging, there would’ve been zero net job creation last month. That said, this isn’t an especially new phenomenon, and the report on the whole again paints a picture of a stalling labour market, where both hiring and firing remain subdued.
That, clearly, keeps further Fed cuts on the cards, possibly as soon as the January meeting depending on what the December jobs report, due early-2026, looks like. I do wonder, at this point, if the FOMC outlook is as simple as there being a cut delivered at each meeting, unless and until the unemployment rate ceases rising, and starts to stabilise. Of note, November’s 4.6% U-3 rate was already above the median year-end projection in the December SEP, which will give the doves plenty of ammo.
Anyway, as I alluded to earlier on, markets didn’t exactly experience any sort of enduring post-payrolls moves, as has become such a theme in recent months.
Consequently, stocks wobbled but ended off intraday lows, Treasuries gained some modest ground across a steeper curve, precious metals further built upon recent gains, while the FX market meandered about after brief USD pressure vanished in rapid fashion. Frankly, all that lot was a classic case of ‘more noise than signal’, and I’m not entirely sure we can extract any real value from what we saw. I, hence, retain my overall bullish equity, and bullish gold/silver, biases.
Besides that, I’ll end with a brief word/rant about the UK. Yesterday’s UK jobs data was undeniably grim, with unemployment rising to a fresh post-covid high 5.1%, and PAYE payrolls data pointing to employment having fallen by more than 20k in each of the last three months, while having also now fallen in 12 of the last 13 months. Perhaps more worryingly than that, earnings growth, at just shy of 5% YoY, remains at a rate incompatible with a sustainable return to the 2% inflation target over the medium term. Even more worryingly, public sector earnings rose 7.6% YoY, while private sector pay rose just 3.9% YoY.
I wrote last month that “public sector earnings growth outpacing that of the private sector to such a degree is not only highly unusual, but also clearly unsustainable”. That not only remains the case, but the latest data points to the situation getting worse, not improving. Clearly, I see no reason to change my assessment on that front, but am increasingly concerned that the ‘powers that be’ won’t recognise the severity of this imbalance until it’s far, far too late.
LOOK AHEAD – After yesterday’s data deluge, today’s docket is, mercifully, considerably lighter.
This morning’s UK inflation figures highlight proceedings, with headline CPI set to have fallen to 3.5% YoY last month which, though marginally hotter than the BoE’s 3.4% YoY forecast, is highly unlikely to deter policymakers from delivering a 25bp cut tomorrow, not least considering the rapid rate at which labour market slack is emerging.
Elsewhere, the latest round of German IFO sentiment surveys, as well as the final read on November CPI, highlight the eurozone data docket, while Stateside participants will have no data to feast on, but will nonetheless chew over remarks from the Fed’s Waller, Williams, and Bostic. We also get earnings from Micron (MU) after the close, which will be worth glancing over at the very least, given the ongoing jitters that continue to surround the AI theme.