December 6 – Stock futures rallied on this morning’s monthly jobs data, as Treasury yields pulled back. The VIX is trading near 13 as stocks firm, while the dollar index trades higher near 105.8, despite a drop in Treasury yields following this morning’s jobs data. Yields on 10-year Treasuries are trading near 4.14%, while yields on 2-year Treasuries are trading near 4.09%. Crude oil prices are 1% lower on soft demand concerns, while the grain and oilseed markets were mostly steady to firm overnight.
The economy created 227,000 non-farm payroll jobs in November, according to the Bureau of Labor Statistics, beating market expectations of 211,000. Furthermore, the dismal October number was revised to 36,000 jobs created, up from the 12,000 originally reported. September job creation was also revised upward to 255,000, up from the 223,000 originally reported. As such, the combined September and October reports were revised upward by 56,000. Private payrolls jumped by 194,000 in November, which fell a bit short of the 200,000 expected. Manufacturing added 22,000 jobs, after cutting 48,000 leading up to the election in October. Healthcare added 54,000 jobs, while leisure and hospitality added another 53,000, government added 33,000, transportation added 32,000, social assistance added 19,000, and retail added 28,000 jobs headed into the holiday shopping season. Yet, the job participation rate slipped to 62.5% in November, down from 62.6% the previous month, and the unemployment rate ticked upward to 4.2%. But unrounded, it came in at 4.246%, which was very close to the 4.253% rate for July reported in August that Powell referred to as being too high when rounded to 4.3%. That’s the number that the market focused on, as Federal Reserve Chair Jerome Powell stated at Jackson Hole, Wyoming in late August that we can’t allow the unemployment rate to go higher.
As such, the market interpreted that as an indication that the Fed will be more likely to cut rates to spur employment. Never mind that Powell stated after the elections that employment is solid, but we must be vigilant to make sure that inflation comes down. It will be quite interesting to see how Powell frames his comments on December 18, after saying in essence that 4.3% was too high in August, but then saying that 4.1% was solid after the election in November. Average hourly earnings rose 0.4% month-on-month in November, matching the previous month, but exceeding market expectations that growth would slow to 0.3%. Average hourly earnings rose 4.0% year-on-year, again matching the previous month’s pace, but exceeding expectations that wage inflation would slow to 3.9%. The average workweek rose to 34.3 hours, after the previous month was revised down to 34.2 hours. Yet, perception is reality to the markets, and the focus was on the rise of the unemployment rate to close to 4.3%, even though that is historically still a low number. Fed fund futures traded 87% odds of a 25-basis-point rate cut on December 18th, up from 71% odds yesterday and up from 66% odds a week ago. They’re now trading expectations of three rate cuts between now and June, up from two rate cuts yesterday.
Chinese traders are focused on next week’s high-level economic working conference that will meet on Monday and Tuesday. Investors want to see more stimulus for the property sector. Stimulus efforts announced thus far provided a bounce in sales, but observers fear that it wasn’t enough to sustain the strength, considering lingering fears about the overall economy, within a context of a declining population in China. Fitch Rating estimates that it will be difficult to avoid a fourth consecutive year of declining home sales next year, with average selling prices expected to drop by another 5% in 2025, with new home sales expected to decline by another 15%. The property sector is one of the cornerstone’s of China’s economy that significantly impacts consumer sentiment. Unfortunately, the results of the above-mentioned working session typically are not made public until the “Two Session” meeting in March, although it’s possible that we’ll hear something sooner this year considering the current state of the economy amid rising geopolitical tensions with the incoming Trump Administration that has consumers worried.
Grain and oilseed prices crept slowly higher again overnight as value buyers continue to take advantage of prices near current low levels. Wheat prices appear to have successfully tested the August lows on the charts, which is a level that previously invited end user buying. Reports of questionable Russian wheat conditions from government officials as the crop goes into dormancy provide underlying support for the market. March corn posted an outside reversal higher on the charts yesterday after finding support once again at the 100-day moving average. Soyoil prices find support from tightening palm oil supplies as Indonesia ramps up its biodiesel requirements, although strength in the soy complex is limited by questions over the future of U.S. 45Z subsidy guidelines as well as the approaching large harvest in Brazil. Wall Street seems focused on getting its “Santa Claus rally.” It’s going to be interesting how much of that optimism translates into commodity inflation talk in the weeks ahead?
