Top of the Morning: Dec Jobs Report, FOMC, and the week ahead
In light of a stronger-than-expected December Employment Report, the desk views this labor market dynamic as a potential catalyst for continued USD strength. Per the full note, the report highlighted a non-Farm payroll increase of 256,000, significantly surpassing the consensus estimate of 163,000, signaling robust economic growth. This backdrop, coupled with a steady unemployment rate at 4.1% and average hourly earnings maintaining growth compatible with the Fed's inflation target, suggests that the Federal Reserve may stay on its current policy path, supporting the USD. The key question now remains how this will influence near-term positioning among institutional market participants.
What the desk is arguing
The dollar's resilience appears to be predicated on a labor market that, while strong as per the December jobs data, is also well-balanced. The addition of 2.2 million jobs for the entirety of 2024 indicates consistent economic activity and underpins market sentiment. This environment diminishes fears of overheating, likely affecting future Fed policy decisions.
The average hourly earnings growth at 3.9% year-over-year aligns closely with the Fed's 2% inflation target; thus, the market may perceive no urgent need for aggressive monetary policy changes. Furthermore, the uptick in the JOLTS job openings count for November could imply a slowly tightening labor market, which could further bolster USD performance in subsequent weeks.
Where it sits in our coverage
Our current coverage shows a consensus target for USD performance at 1.075, with a range spanning 1.04 to 1.12. Notably, jpmorgan has positioned its target at 1.10 for March 26, aligning with our perspective, while bofa holds a more cautious stance with a lower target of 1.04 for the same tenor.
This positioning places our desk's outlook towards the upper end of the consensus spread, suggesting a bullish posture towards USD appreciation against major currencies based on the recent employment data.
How other firms see it
The broader consensus suggests a bullish outlook on the USD, with aligned firms such as jpmorgan supporting the notion of sustained dollar strength. Conversely, firms like bofa maintain a bearish stance, highlighting potential overvaluation risks in the current market structure.
In parallel, attention should be paid to related currency pairs such as USD/JPY, which may reflect additional volatility in response to both U.S. economic data and Bank of Japan monetary policy decisions.
What the calendar says
There are no significant calendar events scheduled that could disrupt current market dynamics, but watch for upcoming data releases that may corroborate or challenge the employment narrative outlined this week.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01December Employment Report exceeded forecasts, indicating a strong labor market.
- 02The Fed may maintain its current policy trajectory, benefiting the USD.
- 03Watch for JOLTS data as an indicator of ongoing labor market trends.
- 04The USD is positioned at the upper range of industry expectations.
Market implications
Traders should monitor the 1.075 level for the USD, as sustained strength above this mark could drive further appreciation. Additionally, shifts in labor data from the JOLTS report could create volatility in currency pairs such as USD/JPY, reflecting market sentiment in response to U.S. labor metrics.
Risks to this view
The primary risk to the bullish USD outlook would be any significant downward revision to employment data or weaker-than-expected economic indicators, which would prompt a reassessment of the Federal Reserve's policy stance and potentially signal a dovish shift.
Hi everyone, Siobhan Chapman here and welcome to Top of the Morning on the UBS Market Moves podcast channel. It's Friday morning, which means it's time for the Weekend Review and Preview conversation where my guests will recap how markets have performed over the past few sessions and preview what you can expect in the week ahead. Today's conversation will primarily focus on the December Employment Report as well as the December FOMC meeting.
Joining us for the conversation, I'm glad to welcome back Senior Economist America's Brian Rose. Brian, welcome. We're happy to have you.
Thanks, Siobhan. Good morning, everyone. Let's begin with the December Employment Report.
How did the data come in and how would you characterize the current health of the U.S. labor market? Overall, this report was quite a bit stronger than expected. The headline non-FOMC payrolls were up by 256,000 the month over month.
That's against a consensus of around 163,000. And for 2024 as a whole, we added 2.2 million payrolls, which is obviously a solid number. There were other good numbers in this report.
The unemployment rate ticked down to 4.1%. And basically, that is the same level as in June. For a long time, the unemployment rate was creeping up and now it looks more like a flat trend.
And we also had average hourly earnings coming in at three-tenths month over month. That's 3.9% year over year. This is a moderate growth that is at a level that is compatible with the Fed's 2% inflation target, more or less.
So overall, you see a strong labor market, but one that's well-balanced, so not overheated. And I should also mention we had other labor data this week. So we had the JOLTS job openings.
This is for November, up for the second month in a row. That's a sort of interesting development. The openings have been trending lower for the last almost three years, but now up a couple of months in a row.
But other numbers in the JOLTS report were weaker. So the hiring rate, quits rate, both down to match their lows for the cycle. So the basic story for the labor market again is well-balanced, strong, but the hiring is not extremely strong, and that's balanced by low levels of layoffs.
We saw again this week initial jobless claims very low. So a lot of, in some sense, stability, not a lot of movement in there. And maybe you could say this is, in some sense, a Goldilocks labor market.
Sources & References
How we cover this story