December Fed rate cut odds rise after employment report

The Daily Shot: 09-Dec-24
• The United States
• Canada
• The Eurozone
• Japan
• Asia-Pacific
• China
• Emerging Markets
• Commodities
• Equities
• Credit
• Global Developments
• Food for Thought

The United States

1. Job gains bounced back in November, aligning closely with forecasts.

• Healthcare, Leisure & Hospitality, and local government once again led payroll growth.

– The employment trajectory outside these sectors has increasingly lagged behind overall payroll growth during the post-COVID job market recovery.

• The Household Survey reported another sharp decline in jobs, even as the Establishment Survey (above) continues to reflect gains.

• The unemployment rate edged higher.

Here are the contributions to the unemployment growth.

Source: Pantheon Macroeconomics

– Underemployment increased as well.

• Labor force participation eased.

Source: @TheTerminal, Bloomberg Finance L.P.

• Wage growth remained robust.

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2. The market interpreted the jobs report as dovish, increasing the likelihood of a Fed rate cut this month.

However, the market sees the Fed pausing in January.

– Treasury yields dropped.

• The US dollar initially fell following the employment report but rebounded sharply later on Friday.

• Stocks gained.

• US financial conditions eased further last week.

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3. The U. Michigan Consumer Sentiment Index rose this month, but the expectations component dropped.

• A surge in buying conditions for durables gave the headline sentiment index a boost.

Here are the contributions to the overall sentiment index.

Source: @TheTerminal, Bloomberg Finance L.P.

• The typical partisan flip in consumer expectations occurred following the elections.

Source: @TheTerminal, Bloomberg Finance L.P.

• Inflation expectations jumped.

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4. Consumer credit rebounded in October, …

… boosted by credit card spending.

• Despite the rise, the ratio of credit card debt to disposable personal income remains significantly below pre-COVID levels.

• Overall consumer credit as a percentage of disposable personal income continues to decline.

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Canada

1. Last month’s job gains exceeded expectations, …

… but the unemployment rate rose, …

… as more Canadians entered or reentered the workforce.

• Wage growth slowed sharply.

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2. The market saw the jobs report as dovish, boosting the odds of a 50 bps BoC rate cut this month.

Source: @TheTerminal, Bloomberg Finance L.P.

• Bond yields and the loonie dropped.

Here is the Canada-US 10-year spread.

• The benchmark equity index hit its 45th record high of the year.

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The Eurozone

1. Traders have been boosting their bets against the euro.

2. Market-based financial conditions have eased.

Source: Deutsche Bank Research

3. Employment sentiment has weakened.

Source: Deutsche Bank Research

4. Services are a key component of France’s GDP.

Source: MRB Partners

Demand for services has improved, while goods consumption is far below its pre-pandemic trend.

Source: MRB Partners

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5. Italian retail sales strengthened in October.

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Japan

1. The revised Q3 GDP growth was stronger than expected.

2. The Economy Watchers outlook index improved last month.

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Asia-Pacific

1. South Korea’s political turmoil has deepened, …

Source: Reuters Read full article

… further pressuring the won …

… and stocks.

Source: @markets Read full article

Sovereign bond yields are moving lower.

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2. Australia’s business investment growth declined sharply during the first half of the year.

Source: Capital Economics

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China

1. The CPI eased further in November, …

… but core inflation edged higher.

Source: CNBC Read full article

Here is China’s clothing CPI.

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2. Stocks are up sharply as Beijing announces more fiscal and monetary stimulus.

Source: CNBC Read full article

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3. Bond yields continue to sink.

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Emerging Markets

1. Let’s begin with Brazil.

– Bond yields continue to surge amid fiscal concerns.

– The real keeps tumbling.

• Growth in services activity slowed last month but remained relatively strong.

• Industrial production edged lower in October.

• The trade surplus was below forecasts.

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2. Mexico’s formal job creation was soft in November.

3. Argentina’s industrial production is grinding higher.

4. South Africa’s electricity production recovery has lost momentum.

5. Next, we have some performance data from last week.

• Currencies:

• Bond yields:

• Equity ETFs:

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Commodities

1. Arabica coffee futures hit their highest level in 47 years.

2. Traders have been boosting their bets on livestock futures.

• Cattle:

• Hogs:

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3. Here is a look at last week’s performance.

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Equities

1. S&P 500 valuation metrics continue to climb.

2. Cyclicals keep outperforming defensives.

• Growth stocks are extending their performance lead over value.

• Dividend stocks have fallen further behind the S&P 500.

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3. The global 60% equity/40% bond portfolio’s recovery appears stretched.

Source: MRB Partners

4. US equity ETFs continue to attract greater inflows than the rest of the world, …

Source: State Street Global Advisors Read full article

… with this year’s inflows breaching $1 trillion.

Source: @markets Read full article

• US investors have favored tech and financials over health care this year.

Source: State Street Global Advisors Read full article

• The ratio of assets in long leveraged ETFs to those in short ETFs has reached a record high.

Source: @markets Read full article

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5. Stock futures’ trading volume has been deteriorating.

6. VIX dipped below 13.

VolDex, which tracks SPY volatility, has dropped to its lowest level since the start of the pandemic.

• Puts are very cheap.

Source: Goldman Sachs; @dailychartbook

• The market is not too concerned about the upcoming CPI report.

Source: BofA Global Research; @MikeZaccardi

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7. Next, we have some performance data from last week.

• Sectros:

• Equity factors/styles:

• Macro basket pairs’ relative performance:

• Thematic ETFs:

• Largest US tech firms:

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Credit

1. US leveraged loan activity continues to advance, driven by repricings.

Source: PitchBook

• European institutional loan activity increased this year.

Source: PitchBook

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2. Next, let’s take a look at some performance data from last week.

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Global Developments

1. The global economy remains in expansion mode, led by the US.

Source: MRB Partners

2. Here is Morgan Stanley’s forecast for key policy rates over the next couple of years.

Source: Morgan Stanley Research

3. Global trade restrictions have increased in recent years.

Source: BlackRock Investment Institute

4. Finally, we have some performance data from last week.

• Currencies:

• Bond yields:

• Equity indices:

• USD-denominated equity ETFs:

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Food for Thought

1. Cost-burden rates for renter households by metro area:

Source: Apartment List

2. Median size of US new single-family homes:

Source: Torsten Slok, Apollo

3. Generational views on Korean reunification necessity:

Source: The Economist Read full article

4. Semaglutide prescriptions, such as Ozempic and Wegovy, for ages 19 and under:

Source: @WSJ Read full article

5. Confidence in scientists:

Source: Pew Research Center Read full article

6. AI preparedness index:

Source: Visual Capitalist Read full article

7. Visualization of paths taken by an unsteered bicycle in 800 simulations:

Source: Matthew Cook, University of Zurich

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