I. Market focus
Market participants’ attention is focused on the U.S labor market data, set to be released at 12:30 GMT. We have the following picture ahead of their release:
- The U.S. economy is expected to add 198,000 jobs in November versus 250,000 jobs added in October (October’s reading will be revised twice: today and the next month);
- The average value of jobs added is 210,000 over the past 12 months. Over the past six months – 216,000. Over the past three months - 218,000;
Fig. 1 U.S. nonfarm payrolls, month-on-month (Source: The Bureau of Labor Statistics of the U.S. Department of Labor (BLS))
- The unemployment rate is expected to stay unchanged at 3.7 percent;
- The private sector in the U.S. added 179,000 jobs in November, according to the ADP report on Thursday. October’s figure was revised down to 225,000 jobs from a previous reading of 227,000. Analysts expected the private sector to add 195,000 jobs;
- The Institute for Supply Management's (ISM) manufacturing employment sub-index for the U.S. rose to 58.4 in November from 56.8 in October; the ISM’s services employment sub-index decreased to 58.4 in November from 59.7 in October;
- Job openings dropped to 7.01 million in September from 7.29 million in the previous month;
- Average initial jobless claims for four weeks is 224,000, remaining near the lowest level since mid-1969;
- The Conference Board reported that 12.2 percent of the respondents experienced difficulties in finding a job in the last reporting month (versus 13.4 percent a month earlier). At the same time, some 46.6 percent of respondents said jobs were plentiful (versus 45.4 percent a month earlier).
Given the data available at the moment, the average forecasts for the payrolls report look rather justified. However, it should be borne in mind that the payrolls report is based on an analysis of other reports. There are differences between these reports.
Data on changes in average earnings can have a particularly strong influence on the markets’ dynamics. It is expected that the average hourly earnings growth accelerated to 0.3 percent m-o-m in November from 0.2 percent m-o-m in the prior month.
II. The market highlights are:
The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed on Thursday the U.S. private employers added 179,000 jobs in November. That was the lowest reading in three months. Economists had expected a gain of 195,000. The increase for October was revised down to 225,000 from 227,000. “Although the labor market performed well, job growth decelerated slightly,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. ”Midsized businesses added nearly 70 percent of all jobs this month. This growth points to the midsized businesses’ ability to provide stronger wages and benefits. It also suggests they could be more insulated from the global challenges large enterprises face.”
The Department of Commerce reported on Thursday the U.S. the goods and services trade deficit widened by 1.7 percent m-o-m (or $0.93 billion) to $55.49 billion in October from a revised $54.56 billion in September (originally a gap of $54.02 billion). That was the highest trade deficit since October of 2008. Economists had expected a deficit of $54.90 billion. According to the report, the October increase in the goods and services deficit reflected a gain in the goods deficit of 1.1 percent m-o-m (or $0.86 billion) to $78.11 billion and a drop in the services surplus of 0.3 percent m-o-m (or $0.08 billion) to $22.62 billion. October exports were $211.05 billion, down 0.1 percent m-o-m, while October imports stood at $266.53 billion, up 0.2 percent m-o-m. Year-to-date, the goods and services deficit surged 11.4 percent y-o-y (or $51.30 billion). Exports rose 7.7 percent y-o-y (or $149.34 billion), while imports boosted 8.4 percent y-o-y (or $200.65 billion).
The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits fell less than expected last week. According to the report, the initial claims for unemployment benefits decreased 4,000 to 231,000 for the week ended December 1. Economists had expected 225,000 new claims last week. Claims for the prior week were revised upwardly to 235,000 from the initial estimate of 234,000. Meanwhile, the four-week moving average of claims rose 4,250 to 228,000 last week, the highest level since mid-April.
Statistics Canada announced on Thursday that Canada’s merchandise trade balance came in at a deficit of a CAD1.17 billion in October, compared to a revised deficit of CAD0.89 bln in September (originally a gap of CAD0.42 billion). Economists had expected a deficit of CAD0.70 billion. According to the report, the country’s exports fell 1.2 percent m-o-m to CAD49.32 billion in October, mainly due to a decline in exports of energy products (-12.4 percent m-o-m), which, however, was partially offset by higher exports of motor vehicles and parts (+4.4 percent m-o-m), and farm, fishing and intermediate food products (+4.8 percent m-o-m). Meanwhile, imports decreased 0.6 percent m-o-m to CAD50.49 billion in October, with lower imports of motor vehicles and parts (-3.5 percent m-o-m), and basic and industrial chemical, plastic and rubber products (-4.5 percent m-o-m) contributing the most to the drop.
The Institute for Supply Management (ISM) reported on Thursday its non-manufacturing index (NMI) came in at 60.7 in November, which was 0,4 percentage points higher than the October reading of 60.3 percent. This pointed to continued growth in the non-manufacturing sector at a faster rate. Economists forecast the index to decrease to 59.2 last month. A reading above 50 signals expansion, while a reading below 50 indicates contraction. 17 of the non-manufacturing industries reported growth in November, the ISM said. According to the report, the ISM’s non-manufacturing business activity measure increased to 65.2 percent, 2.7 percentage points higher than the October reading of 62.5 percent. That reflected growth for the 112th consecutive month, at a faster pace in November. The new orders gauge rose 1.0 percentage point to 62.5 percent last month, while the employment indicator decreased 1.3 percentage points to 58.4 percent. The prices index climbed 2.6 percentage points to 64.3 percent, indicating that prices increased in November for the 33rd consecutive month. Commenting on the data, the Chair of the ISM Non-Manufacturing Business Survey Committee, Anthony Nieves, noted, "The past relationship between the NMI and the overall economy indicates that the NMI for November (60.7 percent) corresponds to a 4.3-percent increase in real gross domestic product (GDP) on an annualized basis.”
The U.S. Energy Information Administration (EIA) said on Thursday that crude inventories fell by 7.3 million barrels in the week ended November 30. That was the first weekly decline after 10 increases. Economists had forecast a decrease of 942,000 barrels. At the same time, gasoline stocks rose by 1.7 million barrels, while analysts had expected a build of 357,000 barrels. Distillate stocks rose by 3.8 million barrels, while analysts had forecast a build of 1,25 million barrels. Meanwhile, oil production in the U.S. was unchanged at 11.700 million barrels per day. U.S. crude oil imports averaged 7.2 million barrels per day last week, down by 943,000 barrels per day from the previous week.
The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, dropped to 57.2 in November from an unrevised 61.8 in September. Economists had expected the gauge to hit 60.3. A figure above 50 shows an increase while below 50 shows a decrease. Within sub-indexes, the employment measure decreased to 54.1 last month from 54.3. in October, while the prices index fell to 63.7 from 72.6 in the prior month, the inventories indicator declined to 55.0 from 60.9 and the deliveries gauge dropped to 40.8 from 43.8.
The Ministry of Internal Affairs and Communications announced on Thursday that the Japanese household spending decreased 0.3 percent y-o-y in October, following a 1.6 percent y-o-y decline in September. Economists had expected household spending to increase 1.4 percent y-o-y in October. Individually, spending reduced for apparel (-8.0 percent y-o-y), housing (-3.6 percent y-o-y), utilities (-2.0 percent y-o-y), food (-1.2 percent y-o-y) and culture & recreation (-0.2 percent y-o-y), but increased for education (+13.3 percent y-o-y), furniture & household utensils (+8.8 percent y-o-y), transportation and communication (+3.5 percent y-o-y) and medical care (+1.0 percent y-o-y).
III. Market Situation
The currency pair EUR/USD fell slightly, responding to the broad strengthening of the U.S. dollar. Investors were also adjusting positions ahead of the release of key data on the U.S. labor market, which will help assess the strength of the economy. Employment growth has remained solid this year, with employers adding an average of 212,000 jobs per month year to date. After rising 250,000 in October, the hiring is expected to show a slowdown to 200,000 in November as jobless claims have increased. However, unemployment is expected to stay at 3.7 percent. Wages should rise 0.3 percent, underpinned by a tight labor market generally and Amazon increasing its minimum wage specifically. It should be remembered that one month of data does not make a trend, and that is particularly true when it comes to the volatile and heavily revised payroll numbers. That makes it unlikely that even a large downside miss would force the Fed to hold off on a rate increase in December. If, however, the jobs numbers in the next couple of months indicate that the trend in hiring is slowing, that could put the FOMC on a more gradual upward path in 2019. At the same time, stronger-than-expected data on payrolls or wages in November would point to the FOMC being likely to hike rates more than markets currently have priced in for 2019. Resistance level - $1.1471 (high of November 20). Support level - $1.1268 (low of November 28).
The currency pair GBP/USD consolidated near the opening level, as investors were cautious ahead of parliamentary debates on a draft Brexit agreement. Theresa May’s government faces a difficult struggle for parliament to support a deal it has agreed with the EU. If May loses the key parliamentary vote on the Brexit deal on December 11, it will open up a huge range of possible outcomes, including a “no-deal” Brexit, snap election or a second referendum. Today, traders will pay attention to the British data on consumer inflation expectations and the U.S. employment statistics. Apart from the data, the focus also will be on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.2926 (high of November 22). Support level - $1.2659 (low of December 4).
The currency pair AUD/USD traded in a narrow range, near the opening level, due to the lack of new catalysts. One of such catalysts will be data on the U.S. labor market, which may impact the prospects of the Federal Reserve’s monetary policy. The media reported yesterday that the Fed officials are considering whether to signal a wait-and-see approach to rate hikes at its upcoming meeting this month. The futures markets place the likelihood of a December rate hike at 74.9 percent. Meanwhile, the chances the Fed raising rates three times throughout 2019 are estimated at only 8 percent, down from 30 percent a month ago. Resistance level - AUD0.7392 (high of December 3). Support level - AUD0.7164 (low of November 13).
The currency pair USD/JPY demonstrated a moderate increase, supported by the strengthening of the U.S. dollar. Investors also digested the statements of the Bank of Japan (BoJ) governor Haruhiko Kuroda, who said he saw no need to ease monetary policy further now and added that the BoJ had no preset idea of what tools to use if more easing is needed, but policymakers will “carefully weigh the cost and benefit of any step we take.” At the same time, Kuroda also dismissed the chance of a near-term interest rate hike. Focus also was on the Japanese data on household spending for October. The Ministry of Internal Affairs and Communications announced the Japanese household spending decreased 0.3 percent y-o-y in October, following a 1.6 percent y-o-y decline in September. Economists had expected household spending to increase 1.4 percent y-o-y in October. Resistance level - Y113.23 (high of December 5). Support level - Y112.23 (low of December 6).
U.S. stock indexes closed mostly lower, but well above their session lows, touched after news of the arrest of Huawei Technologies' CFO fueled concerns about U.S.-China trade negotiations. Stocks rebounded after media reports that the Fed is considering whether to signal a wait-and-see approach to rate hikes at its upcoming meeting this month. Focus also was on a raft of economic data. The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed the U.S. private employers added 179,000 jobs in November. That was the lowest reading in three months. Economists had expected a gain of 195,000. The increase for October was revised down to 225,000 from 227,000. The Department of Commerce reported the U.S. the goods and services trade deficit widened by 1.7 percent m-o-m (or $0.93 billion) to $55.49 billion in October from a revised $54.56 billion in September (originally a gap of $54.02 billion). That was the highest trade deficit since October of 2008. Economists had expected a deficit of $54.90 billion. The data from the Labor Department revealed the number of applications for unemployment benefits fell less than expected last week. According to the report, the initial claims for unemployment benefits decreased 4,000 to 231,000 for the week ended December 1. Economists had expected 225,000 new claims last week. The Institute for Supply Management (ISM) reported its non-manufacturing index (NMI) came in at 60.7 in November, which was 0,4 percentage points higher than the October reading of 60.3 percent. This pointed to continued growth in the non-manufacturing sector at a faster rate. Economists forecast the index to decrease to 59.2 last month. A reading above 50 signals expansion, while a reading below 50 indicates contraction.
Asian stock indexes closed mostly higher on Friday, correcting after the previous day’s plunge. Some support to the markets was also provided by the reports that the U.S. Federal Reserve could tighten monetary policy at a slower-than-expected pace.
European stock indexes are expected to trade higher in the morning trading session.
Yields of US 10-year notes hold at 2.89% (-1 basis points)
Yields of German 10-year bonds hold at 0.24% (0 basis points)
Yields of UK 10-year gilts hold at 1.11% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in January settled at $51.05 (-0.85%). The crude oil prices fell, weighed down by a stronger U.S. dollar and uncertainty over the OPEC’s decision on output cuts. Market participants were also preparing for the release of weekly data on the U.S. oil rig count from Baker Hughes.
Gold traded at $1,238.50 (+0.08%). Gold prices edged up, due to the strengthening of the U.S. currency and investors’ caution ahead of the release of the U.S. labor market data. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.07 percent to 96.88. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
Foreign Currency Reserves
Halifax house price index
Consumer Inflation Expectations
Private Nonfarm Payrolls
Labor Force Participation Rate
Average hourly earnings
Reuters/Michigan Consumer Sentiment Index
FOMC Member Brainard Speaks
Baker Hughes Oil Rig Count
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