December’s unemployment data is released at 8:30. Yesterday’s ADP Private Sector Employment survey, which is now regarded as second tier statistic, indicated that private payrolls increased 164,000 last month, the most since August, an amount that exceeded all estimates. Will this translate into an upside surprise in today’s BLS data?
Analysts are expecting a 175k and 130k increase in non-farm and private sector payrolls, a 3.8% unemployment rate, a 0.3% increase in hourly earnings, a 34.4 average hourly work week and a 62.8% labor participation rate.
Yesterday’s ADP data lowered the odds of a rate cut in March to about 65%. Before the data was released, a rate cut in March was fully discounted. As noted yesterday and in direct contradiction to the market’s outlook, the Minutes December’s FOMC meeting did not even mention the possibility of a March reduction.
Several years ago, the mantra regarding potential Fed policy was “more now equals less later,” defined as the more rate hikes that the market was willing to price in for 2002, the easier it expected policy to be in 2023. This proved to be a massive miscalculation.
In some ways today it is the reverse…” less now equals more later” as the market is still suggesting 150 bps of reduction by year’s end, perhaps commencing in the May/June time period.
Will this too prove to be a miscalculation?
The Treasury market continued its selloff as yields rose across the spectrum. Bloomberg writes the 2024 selloff in the bond market has wiped out about $240 billion in bond values, one of the worst cross asset selloffs that has occurred at the start of the year “in decades.”
The NASDAQ declined another 0.6%, the fifth consecutive day of the decline and the longest stretch since October 2022, partially the result of declining bond prices. The Dow was essentially unchanged.
Changing topics, little attention has been focused on the shipping issues in the Middle East. Depending upon the source, anywhere between 15% and 25% of global trade has been affected. According to Bloomberg, Shipping rates are up over 60% since hostilities commenced about 30 days ago.
Writing the obvious, the longer these tensions exist, the greater the inflationary impact.
At this juncture there is little geopolitical premium in the markets, an environment that surprises many veteran market observers.
Today’s trading may be influenced by the 8:30 data.
Last night the foreign markets were down. London was down 0.94%, Paris down 1.16% and Frankfurt down 0/88%. China was down 0.85%, Japan up 0.27% and Hang Seng down 0.66%.
Dow and NASDAQ futures are down 0.15% and 0.4%, respectively but this could radically given the potential significance of December’s employment data. The 10-year is off 10/32 to yield 4.04%.
