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Solid Jobs Creation Pushes Monetary Easing Expectations Back

The US economy generated stronger wage growth and more jobs than expected in December, adding momentum to an ongoing reversal in Federal Reserve rate cut bets across the financial markets. According to data released by the Bureau of Labor Statistics this morning, 216,000 jobs were added, and the unemployment rate held steady at 3.7 percent, remaining near historic lows. Average hourly earnings rose 4.1 percent year-over-year, solidly topping expectations for a 3.9 percent increase. Ahead of the release, consensus estimates had pointed to a 170,000-job gain, and the unemployment rate was seen moving slightly higher. Diffusion indices – which measure...

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Dollar Climbs Ahead Of Payrolls

Rate-sensitive currencies and financial assets are retreating once again as overwrought monetary easing expectations undergo a forced unwind. Odds on a rate cut at the Federal Reserve’s March meeting have fallen below 65 percent from over 90 percent in December, with this morning’s non-farm payrolls report expected to show the US job creation engine continuing to churn out new roles. Markets think 170,000 new jobs were added in December, even as wages cooled and the unemployment rate rose to 3.8 percent. Data out yesterday showed continuing claims remaining low against an improved private sector hiring backdrop. Equity futures are softer,...

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Market Hangover Eases

Having moved past the puking stage, traders have moved from the bed to the sofa, and are now ordering McDonald’s for delivery. Equity futures are setting up for modest gains at the North American open, Treasury yields are stabilizing, and pro cyclical units are climbing across currency markets as post-New Year positioning adjustments near completion. Minutes taken during the Federal Reserve’s December meeting seemed consistent with three rate cuts this year, beginning later than March. Policymakers broadly agreed that easing could prove necessary this year, noting “the downside risks to the economy that would be associated with an overly restrictive...

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New Year, New U-Turn

2024 is off to an inauspicious start. Ten-year Treasury yields are pushing toward the 4-percent threshold, equity futures are pointing to another day of losses, and risk-sensitive currency units are retreating against a resurgent dollar as traders turn incrementally more cautious on the likelihood of an imminent and aggressive easing cycle from the Federal Reserve. Investors are currently assigning circa-70-percent odds to a rate cut at the central bank’s March meeting, down from above 85 percent last week. The Fed will publish minutes taken during its December meeting this afternoon, providing insight into the thinking that motivated Jerome Powell’s dovish...

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Soft landing bets firm as inflation slows and consumer demand holds up

The Federal Reserve’s preferred inflation measure softened more than expected in November even as durable goods order soared, helping ratify bets on a “soft landing” in the US economy ahead of year end. Data released by the Bureau of Economic Analysis this morning showed the core personal consumption expenditures index rising 0.1 percent in November from the prior month, bringing the three-month annualized pace to 2.16 percent, well within the central bank’s target range. On a year over year basis, core prices were up 3.2 percent, undershooting consensus estimates that had been set closer to 3.3 percent. The overall personal...

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