U.S. Labor Market Surges Past Expectations in December with 216,000 Job Additions; Wage Growth Exceeds Estimates

Economic

Summary:

The U.S. job market concluded 2023 on a robust note, exceeding expectations with an impressive addition of 216,000 jobs in December, according to the latest report from the Labor Department. The unemployment rate remained steady at 3.7%, outperforming estimates of 3.8%.

The U.S. labor market demonstrated unexpected strength as it closed out 2023, with the latest Labor Department report revealing an impressive addition of 216,000 jobs in December. This figure surpassed economists' predictions of 170,000, showcasing a robust pace of hiring that outperformed November's revised figure of 173,000.

U.S. Labor Market Surges Past Expectations in December with 216,000 Job Additions; Wage Growth Exceeds Estimates_1

While the unemployment rate held steady at 3.7%, defying estimates of a slight uptick to 3.8%, the broader measure of unemployment, including discouraged workers and part-time employees for economic reasons, saw a marginal increase to 7.1%. The "real" unemployment rate was influenced by a decline in job holders by 683,000, offset by a rise in those working multiple jobs, up by 222,000.

U.S. Labor Market Surges Past Expectations in December with 216,000 Job Additions; Wage Growth Exceeds Estimates_2

However, the labor force participation rate experienced a slight dip to 62.5%, marking its lowest point since February and a monthly decline of 0.3 percentage points, equivalent to a reduction of 676,000 in the civilian working-age population.

The December report, combined with revisions to previous months, resulted in a total of 2.7 million job gains in 2023, with a monthly average of 225,000. This represents a notable decrease from 2022, which saw 4.8 million job additions at an average monthly rate of 399,000.

Despite the positive job market indicators, financial markets exhibited a meandering response to the data, influenced in part by a lower-than-expected reading from the ISM services gauge, which posted a 50.6 reading—indicating narrow expansion and the lowest employment component level since May 2020.

In terms of sector-specific contributions to job growth, government jobs saw an increase of 52,000, while health care-related fields, including ambulatory health-care services and hospitals, added another 38,000 positions. Leisure and hospitality contributed 40,000 jobs, social assistance increased by 21,000, and construction added 17,000. Retail trade expanded by 17,000, while transportation and warehousing experienced a loss of 23,000 jobs.

The report highlighted persistent inflationary pressures in the labor market, with average hourly earnings rising 0.4% on the month and 4.1% from a year ago—exceeding estimates of 0.3% and 3.9%, respectively. The average workweek edged lower to 34.3 hours.

The market response also extended to Fed funds futures, with the odds of a March rate cut from the Federal Reserve decreasing to approximately 56%, according to the CME Group. Analysts, such as Andrew Patterson, senior international economist at Vanguard, noted that the report underscores the challenges the Fed faces in reaching its 2% inflation target, with policy rate cuts expected in the second half of the year.

Despite concerns over a potential economic slowdown and expectations of a more dovish Fed, the report suggests that the U.S. economy continues to defy projections. The data challenges the narrative of a substantial easing of monetary policy, with the belief that inflation will recede further in the coming months. As Seema Shah, chief global strategist at Principal Asset Management, pointed out, the recent labor market data points toward strength, adding to the ongoing narrative of a resilient U.S. economy.

Economic growth indicators also remain positive, with GDP on track to increase at a 2.5% annualized pace in the fourth quarter, according to the Atlanta Fed's GDPNow real-time tracker. Consumer resilience is evident in holiday spending, projected to reach a record $222.1 billion, representing a 5% increase, according to Adobe Analytics. As the U.S. economy continues to outperform expectations, the prospect of a Fed rate cut in March appears less likely, challenging market expectations for a more accommodative monetary policy.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Comments

Add to Favorites

Ukadike Micheal

Economic

In the week ending January 3, borrowing from the Federal Reserve's Bank Term Funding Program (BTFP) hit an unprecedented high, reaching $141 billion, surpassing the previous record of $136 billion in the prior week. The surge is attributed to the appealing pricing of the facility, despite diminishing expectations for interest-rate cuts. Launched amid last year's banking crisis, the BTFP allows financial institutions to borrow funds for up to one year, utilizing US Treasuries and agency debt as collateral at par value. The facility, set to expire in March, raises questions about a potential extension by Fed policymakers.

Recent data from the Fed reveals the heightened demand for the BTFP, with borrowing costs decreasing as traders anticipate more rate cuts in 2024. At approximately 140 basis points, institutions find it economically favorable to borrow through the BTFP, currently offering a rate of 4.90%, rather than resorting to the discount window, which charges eligible institutions 5.5%. In contrast, borrowing from the discount window amounted to just $2.16 billion in the week through January 3, significantly lower than the all-time high of $153 billion in March.

The drop in BTFP borrowing costs has created a notable arbitrage opportunity for banks. Financial institutions leverage this advantage by borrowing from the facility and then depositing the proceeds in their accounts at the Fed, earning interest on reserve balances at the current rate of 5.40%. This 50-basis-point spread, a mere fraction below the record 57 basis points reached on December 28, underscores the attractiveness of this financial strategy.

As the BTFP continues to play a pivotal role in shaping banks' borrowing behavior, its significance within the broader financial landscape becomes increasingly apparent. The ongoing appeal of the facility, coupled with potential considerations for an extension beyond March, raises important questions about the evolving dynamics of the financial markets and the Federal Reserve's role in supporting stability. In an environment marked by shifting interest-rate expectations, the BTFP's influence on banks' decision-making underscores the intricate relationship between monetary policy and market dynamics.

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Chandan Gupta

Traders' Opinions

Economic

Forex

In 2023, the USD/JPY pair experienced a trajectory of fluctuating values, showcasing varied highs and lows. The Japanese yen witnessed a consistent depreciation against the US dollar throughout the year, with the USD/JPY pair trending upwards. The year commenced at a low point of 127.21 on January 16th, peaking on November 13th at 151.90 yen per dollar.

The yen's depreciation was attributed to the prolonged ultra-dovish stance of the Bank of Japan (BoJ), maintaining a negative interest rate of -0.1%. This rate, unattractive compared to higher rates offered by other leading central banks, led investors to engage in carry trade strategies, borrowing yen at low rates and converting it to US dollars and Treasury bonds to capitalize on interest rate differentials without excessive risk.

The Bank of Japan appeared more inclined towards economic indicators than direct intervention in the yen's exchange rate. Despite rising inflation, hitting 4.2% in June 2023, the BoJ made limited policy adjustments, shifting from a strict to a more flexible yield curve targeting. Verbal assurances from top officials indicated control, but actions remained minimal and largely verbal.

Expectations were high at the beginning of the year, with various financial institutions predicting a downward trend for the USD/JPY pair. However, as months passed, forecasts were adjusted, reflecting a growing uncertainty among market participants about the direction of the pair.

By the latter part of the year, as the USD/JPY pair approached a critical level of 150.00, reminiscent of an intervention triggered in 2022, speculations arose about potential interventions by Japanese authorities. On October 3, as the pair briefly surpassed 150.00, a swift decline ensued, leading to a drop of almost 300 points, followed by a partial recovery. This incident raised speculation about a possible currency intervention, although it could not be confirmed.

The yen showed signs of resilience towards the end of the year, strengthening against the dollar. The positive movement was attributed to market expectations of a potential shift in the BoJ’s policy, with talks of abandoning the negative interest rate policy gaining traction. Furthermore, market sentiments anticipated a plateau in key interest rates of major economies, hinting at a potential reversal in carry trade strategies.

As the year drew to a close, the USD/JPY pair hit a low of 140.24 on December 28 before concluding the year at 141.00.

Looking ahead to 2024, forecasts and speculations from various financial institutions and agencies suggest a divergent outlook for the USD/JPY pair. Projections range from a strengthening yen, aiming for a range of 125.00-135.00, to more bullish estimates predicting a continuation of the upward trend towards levels exceeding 180.00. The speculative nature of these forecasts indicates the inherent uncertainty surrounding currency market movements and their unpredictability.

The USD/JPY journey in 2023 encapsulated a narrative of market expectations, interventions, and persistent volatility. As the new year started, the narrative is poised for a potential continuation or divergence, subject to economic policies, global market sentiments, and unforeseen geopolitical events. USD/JPY Sneak Peek Into 2024_1

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Ukadike Micheal

Economic

Stocks

The dawn of the new year has brought a subdued start to European stocks, setting the tone for what appears to be a challenging first week of trading in 2024. Global sentiment, marked by fluctuating uncertainties, has cast a shadow over the markets, leading to a decline in European stocks. This article delves into the factors contributing to this early market turbulence, examining the impact of German retail sales data on specific sectors and the broader Stoxx 600 index. Additionally, it explores the global context, drawing parallels with the mostly negative start in U.S. and Asia-Pacific stock markets, and sheds light on the upcoming Euro Zone inflation data, a crucial metric influencing investor sentiment.

The Stoxx 600, a key benchmark for European stocks, witnessed a 0.66% decline at the opening of the trading session, with all sectors slipping into the red. Notably, retail stocks bore the brunt of the market downturn, registering a 1.3% drop, fueled by disappointing German retail sales figures for November. This immediate reaction underscores the sensitivity of the market to economic indicators, with specific sectors feeling the impact more acutely.

While the pan-European index managed to rebound by 0.7% on Thursday after two consecutive negative sessions, the overall trajectory has mirrored the global trend. U.S. and Asia-Pacific stock markets, which experienced a mostly negative start in 2024, are witnessing major Wall Street averages poised to break nine-week winning streaks. Understanding the interconnectedness of these markets is crucial for a comprehensive analysis of the prevailing challenges.

The decline in European stocks, particularly in the retail sector, can be traced back to the unexpected drop in German retail sales for November. The 1.3% decrease in retail stocks reflects broader concerns about consumer spending and economic health. This section explores the nuances of the German retail sales data, delving into the factors contributing to the decline and assessing its implications for the retail sector and the broader market.

To gain a holistic understanding of the challenges facing European stocks, it is essential to contextualize the market movements within the broader global landscape. This section draws parallels between the European market's performance and the mostly negative start observed in U.S. and Asia-Pacific stock markets. By examining the similarities and differences, we can unravel the shared concerns and unique factors influencing market dynamics across regions.

Against the backdrop of early market challenges, investors are turning their attention to upcoming Euro Zone inflation data. Flash inflation figures, expected on Friday morning, hold significant weight in shaping market sentiment. This section delves into the anticipated impact of the Euro Zone inflation data, analyzing the expectations following higher-than-anticipated headline prints for France and Germany in the previous month. Economists' projections suggest a rise to 3% in December, adding an additional layer of uncertainty to the market dynamics.

The early market movements in European stocks underscore the intricacies of navigating global uncertainties in 2024. From sector-specific challenges triggered by German retail sales data to the broader context of global market trends, understanding the multifaceted factors influencing market dynamics is paramount. As investors grapple with uncertainties, the forthcoming Euro Zone inflation data stands as a pivotal metric that could further shape market sentiment in the weeks to come. This comprehensive analysis provides insights into the current challenges and sets the stage for continued monitoring of evolving market conditions.

Source: CNBC

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Ukadike Micheal

Economic

Stocks

China has reportedly provided informal guidance to certain money managers, urging them to prioritize the launch of equity funds over other products like bond funds. This "window guidance" from regulatory authorities, particularly the China Securities Regulatory Commission (CSRC), aims to boost the country's lagging stock market. As part of broader efforts to revive investor confidence amid challenges such as a property sector crisis and slowing growth, the move underscores a strategic push by authorities to stimulate investment in stocks.

The CSRC's recent advice to major mutual fund managers reflects a concerted campaign to revitalize China's $3.8 trillion mutual fund industry, a crucial component of the country's capital markets. The industry has experienced dwindling sales, especially in equity funds, over the past year, coinciding with multi-year lows in stock benchmarks.

Efforts to launch new equity funds align with the Chinese government's year-long initiative to bolster the stock market, which has faced headwinds from economic uncertainties. Despite previous measures, such as reducing stamp duty on stock trading, slowing initial public offerings (IPOs), promoting margin financing, and safeguarding small investors, China's stock market struggled in 2023. The CSI300 index closed the year with an 11% loss, while global stocks gained 20%.

As part of the recent guidance, the CSRC reportedly instructed some fund managers to launch a minimum of four new equity funds before introducing any new bond funds. While these measures aim to rejuvenate the equity market, analysts remain skeptical about their efficacy in restoring overall market confidence.

In 2023, China saw a decline in the launch of new equity funds, with a 22% decrease from 2022 and a significant 49% drop from 2021. The funds' proceeds also experienced declines of 39% and 89% from 2022 and 2021, respectively, amounting to 137.5 billion yuan ($19.18 billion). In contrast, institutional-tailored bond funds, a popular category, witnessed a modest decline in new launches and steady growth in proceeds.

Amid Beijing's renewed push, the private funds sector, with around 20 trillion yuan in assets, has witnessed quicker approvals for new equity funds compared to funds tracking other asset classes in the past two months.

Since July, the CSRC has been implementing reforms in the funds industry, directing managers to reduce management fees. While some funds responded with fee cuts or purchasing units in their own funds, the industry observed varying trends, with bond funds often shortening subscription periods or limiting investor subscriptions.

Despite the regulator's push for mutual fund managers to prioritize equity fund launches, uncertainties persist regarding local investor interest, particularly as they grapple with diminishing stock market returns. Analysts remain cautious about the potential impact of promoting equity funds in a sluggish market, citing high marketing costs and potential low effectiveness.

China's move to encourage equity fund launches reflects ongoing efforts to navigate challenges in the financial markets. The success of these measures remains uncertain, and the effectiveness of revitalizing investor interest in equities depends on a multitude of factors, including market conditions and investor sentiment.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Devin

Economic

Bond

A 150-billion-euro ($165 billion) deluge of government bond sales in January is fueling unease in euro area bond markets, a foretaste of a potentially record amount of public debt that markets will have to absorb this year.

Bond yields, which move inversely to prices, have started 2024 higher after plunging in November and December. Germany's 10-year yield, the euro zone benchmark, has risen to just over 2% from a one-year low of 1.896% last week.

A trimming of investor bets on how much and how early central banks will cut interest rates this year has driven the bond selloff. Now adding to it, are concerns that markets will struggle to digest another year of hefty government debt sales.

ING estimates that the euro area will issue around 150 billion euros of debt this month alone as governments seek to take advantage of the recent yield fall and investors look for new-year opportunities. There is 72 billion euros of net supply when redemptions are factored in.

Inflation has driven euro zone states to increase welfare payments and public sector wages, while higher borrowing costs are adding to their interest bills, keeping debt issuance high.

A similar amount of debt was issued in January last year, but it's now coming after a powerful rally that looks like it's nearing an end, said Societe Generale interest rates strategist Jorge Garayo.

"The current (yield) levels, they look difficult for the market to digest the amount of supply that is going to be coming," he said. "For us, supply will be a worry and should have an upward impact on yields."

Michael Weidner, co-head of global fixed income at Lazard Asset Management, said one concern is that governments plan to issue a large amount of longer-dated debt.

Longer-dated bonds are generally viewed as more risky, so investors typically demand a premium to hold them.

"We believe there will be more issuance in (longer-dated bonds), and how much duration the market's ready to absorb is a bit of a question mark given the level of yields," said Weidner.

Germany plans to issue 10-year bonds this month, and Spain has already sold a 30-year maturity.

ECB Factor

Adding to investors' worries is the fact that the European Central Bank (ECB), a hoover of government debt over the last decade, is extricating itself from the market.

The ECB announced in December it would start to reduce its 1.7 trillion-euro pandemic-era bond purchase programme - PEPP - by 7.5 billion euros a month in the second half 2024. It is already winding down another of its asset purchase schemes.

When so-called quantitative tightening is taken into account, markets could have to absorb a record 675 billion euros of government debt this year, Barclays estimates, up 25 billion euros on last year.

Wave of Debt Sales Adds to January Nerves in Euro Zone Bond Markets_1

Weidner said he expects the gap between Italian and German bond yields to widen as Germany tries to bear down on its debt levels and the ECB, which has been a crutch for Italian bonds, steps out of the market.

At around 168 basis points, that spread has widened roughly 10 bps over the past week but was still below peaks seen in recent years.

Not everyone is concerned. Joost van Leenders, senior investment strategist at Van Lanschot Kempen, said inflation and central banks will continue to drive bond markets.

"The economic and inflation cycles tend to be far more important than concerns about bond issuance," he said. "Bond yields have fallen because inflation has fallen."

Governments will still be able to issue debt, said RBC Capital Markets' chief European macro strategist Peter Schaffrik, especially as they also plan to redeem plenty of bonds, returning money to investors.

"I don't think there will be any failed auctions or anything like that, it's just a question of the yield concession that the market demands."

($1 = 0.9122 euros)

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Zi Cheng

Traders' Opinions

Economic

In December, American employers exceeded expectations by hiring a greater number of workers and simultaneously increased wages at a robust pace. This has led to uncertainty regarding financial market predictions that the Federal Reserve would initiate interest rate cuts in March.

The unemployment rate for November 2023 was 3.7% where economists were predicting the rate for December to be 3.8% which is an increase, negative for the Dollar. The actual turns out to be 3.7% which is the same as previous and lower than the economists' expections. It was a huge positive impact for the dollar.

Besides that, Non Farm Payrolls data was also released for the month December 2023. Previously, NFP was 199,000 for the month November, economists were expecting a much lower data of 170,000 which is bad for the Dollar. Surprisingly, the actual data, 216,000 came out higher than previous and forecast. Whenever we see the actual data higher than previous and forecast, expect to see some huge candlestick in the markets.