| USA Nonfarm payrolls rose 199K in November, more than the median economist forecast calling for a +185K print. This positive surprise was offset by a -35K cumulative revision to the previous thanks in large part to a 28K gain in the manufacturing sector. Construction payrolls also expanded (+2K), but only marginally. Jobs in ser-vices-producing industries, for their part, expanded 121K, with notable increases for health/social assistance (+93K) and leisure/hospitality (+40K). Alternatively, cuts were observed in the retail (-38K), professional/business services (-9K) and transportation/warehousing (-5K) categories. The temporary help services category, meanwhile, saw payrolls drop 14K. In total, 150K jobs were created in the private sector, compared with 49K in the public sector, the latter tilted towards state/local administrations. Average hourly earnings rose 4.0% YoY in November, unchanged from the previous month and in line with consensus expectations. Month on month, earnings progressed a consensus-topping 0.4% Nonfarm payrolls came roughly in line with consensus expectations after accounting for revisions to the prior month, manufacturing employment benefited from the end of the UAW strike, which meant roughly 30K auto workers returned to work during the month. Outside manufacturing, employment gains were once again concentrated in just a few client-facing services industries, namely health/social assistance and lei-sure/hospitality. Retail employment, on the other hand, registered a second consecutive decline, a result which suggests demand might be starting to ebb in that segment. The 14K decline in the temporary help services category was another weak point in the report, as this segment tends to be one of the best leading indicators for the labour market as a whole The household survey painted an even more upbeat picture of the situation prevailing in the labour market, with a reported 747K increase in employment. This sizeable gain, combined with a one-tick increase in the participation rate and a 532K expansion of the labour force, translated into a 2-tenth decrease in the unemployment rate, to 3.7%. Full-time employment jumped 347K in the month, while the ranks of part-timers swelled 339K The JOLTS report showed a sizeable decline in the number of vacancies, a deceleration that found echo the Conference Board’s Consumer Confidence report published ten days ago which showed a continued deterioration of the labour differential. While all of these indicators remain at relatively high levels on a historical basis, they still point to a slow-down in hiring which should eventually be reflected in the main employment reports The trade deficit widened from $61.2 billion to $64.3 billion. Good imports increased $0.3 billion (to $263.0 billion), led by capital goods (+$1.7 billion) and food (+0.2 billion) while autos (-$0.9 billion) posted a decline. Goods exports, for their part, re-traced $3.2 billion on losses for civilian aircraft (-$0.9 billion), consumer goods (-$2.1 billion), and autos (-$0.9 billion). Seeing how imports outpaced exports, the goods trade deficit widened from $86.3 billion to $89.8 billion The University of Michigan Consumer Sentiment index increased from 61.3 in November to 69.4 in December. The improvement of sentiment in December was due to a better assessment of both longer-term perspectives (from 56.8 to 66.4) and current conditions (from 68.3 to 74.0) The Biden administration on Thursday threatened to seize the patents of pricey prescription drugs. According to Bloomberg, the administration unveiled a new framework under which US agencies may use so-called march-in rights. This will allow them to grant patents to rival pharma companies if a drug developed with the help of taxpayer money becomes prohibitively expensive The resilient labor market that supported an unexpectedly strong U.S. economy this year is showing signs of cooling. The latest signs that it is coming back into greater balance will be welcomed at the Fed, which will be meeting next week for their final policy decision of the year. When Fed Chair Powell noted that the central bank can “let the data reveal the appropriate path”, this week’s data points to a steady course. All eyes will be on next week’s CPI release to see if it corroborates that plan of action A late rally helped the major indexes end flat to modestly higher for the week. The small-cap Russell 2000 Index outperformed the S&P 500 Index for the third time in the past four weeks, helping narrow its significant underperformance for the year-to-date period. Growth stocks built modestly on their lead over value shares, however. Within the S&P 500, energy stocks lagged as domestic oil prices fell below USD 70 per barrel for the first time since June In terms of data release, CPI is out on Tuesday. All eyes will be on the Consumer Price Index report for November released Tuesday, which happens to coincide with the first of the two-day monetary policy meeting of the Federal Reserve. Lower gasoline prices are expected to hold the headline rate of inflation flat in November and forecast the core CPI, which excludes food and energy, to rise 0.3%, signaling slower progress on underlying inflation. A miss to the upside may drive a market reaction spurring higher yields, but it is unlikely the CPI data will materially change the outcome of the Fed meeting, where it’s essentially universally expected the FOMC will elect to keep rates on hold Retail sales is out on Thursday. Consumers spent at a robust pace this year helping usher out fear of recession. Early signs of fourth quarter growth have also suggested households continue to spend at a decent clip to end the year. While overall retail sales slipped 0.1% in October, the control group components of retail sales, which tend to align better with broader consumer spending in the GDP data, rose 0.2%. But spending looks to have slowed a bit in November. According to the Bureau of Economic Analysis, credit card purchases slipped 7.4% last month. While data do not track perfectly with the Census Bureau’s measure of retail sales, the drop off is certainly consistent with some weakness in spending last month. UK In its financial stability report, released Wednesday, the Bank of England warned that in the context of rising long-term interest rates, the excess cyclically adjusted price-to-earnings CAPE yield on US equities has continued to fall and is approaching its lowest level since around the time of the dot-com crash in the early 2000s. (The CAPE yield is a measure of the excess return that investors expect from equities relative to government bond yields). That the yield is falling could imply that US equity valuations have become more stretched, the central bank said. The BOE also said that private credit and leveraged lending are particularly vulnerable to sharp revaluations given that companies with such financing are in a tricky spot because of the sharp increase in interest rates and the floating rate nature of those debt instruments Starting salaries for newly appointed employees in Britain rose at the slowest pace since March 2021 last month, according to industry data that offered some comfort to the Bank of England in its fight against inflation pressures. The Recruitment and Employment Confederation monthly survey has pointed towards a cooling in Britain’s hot hiring market for much of this year although it has been slow to translate into broader official labour force data. The BoE is keeping a close watch on labour market trends as it fears shortages of workers and skills mismatches since Brexit and the COVID-19 pandemic will make it hard to return inflation – currently 4.6% – to its 2% target. The BoE is expected to keep interest rates at a 15-year high next week and restate that it is not close to cutting them. Official data showed average pay excluding bonuses grew at an annual rate of 7.7% in the third quarter of 2023, only just off a previous record high Activity in the UK’s construction sector fell sharply for a third month in a row in November due to a continued slump in homebuilding, according to a Purchasing Managers’ Index compiled by S&P Global and the Chartered Institute of Purchasing and Supply. EU ECB Executive Board member Isabel Schnabel signaled a shift to a dovish stance in an interview with Reuters, saying, “The most recent inflation number has made a further rate increase rather unlikely.” Inflation has slowed sharply for three months in a row to just above the ECB’s 2% target. Schnabel, the first policy hawk to change her view, also warned—as have other policymakers—that the fight against inflation is not over and that prices may rise again as budget subsidies expire and high energy prices fall out of annual comparisons. Meanwhile, Governing Council member Francois Villeroy de Galhau told a French newspaper that disinflation was happening more quickly than previously thought. “This is why, barring any shocks, there will not be any new rise in rates. The question of a rate cut could arise in 2024, but not right now,” he said Industrial output fell for a fifth consecutive month in October, sliding 0.4% sequentially, which was more of a contraction than the 0.2% increase called for in one consensus estimate. Factory orders unexpectedly slumped, dropping 3.7%. Meanwhile, the jobless rate rose to 5.9% in November, the highest level since May 2021 In local currency terms, the pan-European STOXX Europe 600 Index advanced for a fourth consecutive week, ending 1.30% higher. Stocks appeared to receive a lift from expectations that central banks could cut interest rate next year due to slowing inflation and signs that European economies have been faltering. Major stock indexes rose as well. France’s CAC 40 Index climbed 2.46%, Germany’s DAX gained 2.21%, and Italy’s FTSE MIB added 1.59%. CHINA Moody’s cut its outlook for China’s government bonds to “negative” from “stable” on Tuesday, saying that the country’s debt-laden local governments and state firms posed downside risks to the economy. The ratings cut from the U.S. credit agency was the latest setback for financial markets in China, which is grappling with a yearslong property market downturn and flagging consumer and business confidence. In response, Beijing issued a flurry of pro-growth measures this year to shore up demand, although analysts say the measures have been insufficient to revive the economy. Bearish sentiment about China’s longer-term outlook appeared to lead investors to look past the private Caixin/S&P Global survey of services activity, which rose to an above-forecast 51.5 in November from October’s 50.4. The gauge remained above the 50 threshold, indicating expansion for the 11th straight month and recorded its highest increase since August. The reading contrasted with the prior week’s official nonmanufacturing Purchasing Managers’ Index (PMI), which contracted for the first time in 12 months. Overseas exports rose an above-consensus 0.5% in November from a year earlier, reversing the 6.4% decline in October and marking the first increase in six months. However, imports unexpectedly fell by 0.6% in November, down from the 3% growth in October. The results were disappointing given the low base effect of China’s pandemic lockdowns in the prior-year period, which significantly weighed on activity. Overall trade surplus rose to USD 68.39 billion, up from October’s USD 56.5 billion Chinese equities fell after a credit downgrade on China’s sovereign debt by Moody’s underscored worries about its economic outlook. The Shanghai Composite Index declined 2.05%, while the blue-chip CSI 300 gave up 2.4% after falling midweek to its lowest level in nearly five years. In Hong Kong, the benchmark Hang Seng Index fell 2.95%, according to FactSet. |
| Sources: T. Rowe Price, MFS Investments, Wells Fargo, National Bank of Canada, TD Economics, M. Cassar Derjavets. |
