Top of the Morning: December Jobs Report & U.S. macro update
The recent December jobs report hints at a cooling labor market, aligning with expectations of modest economic growth moving into 2026. Per the full note from UBS, while 50,000 jobs were added in December, the overall context reveals that the labor market's strength may be waning after a year of deteriorating nonfarm payroll numbers in 2025. This situation reinforces the traders' view that the Federal Reserve may need to adjust its monetary policy stance as labor market pressures evolve.
What the desk is arguing
The desk posits that the December jobs report signals a shift in the labor market that could prompt a reevaluation of U.S. monetary policy. Following a challenging year for employment metrics, the 50,000 jobs added in December reflect a more complex economic landscape, with the unemployment rate remaining stable but elevated.
Moreover, given that initial jobless claims were stable, there is cautious optimism about how these dynamics interplay with broader economic trends such as AI adoption and tariff effects. This nuanced view aligns with UBS’s assessment of labor market pressures and their implications for growth expectations.
Where it sits in our coverage
Our current consensus target for the USD is 1.075, with a range of 1.04 to 1.12 over the short term. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This desk’s view, currently leaning toward a stronger USD, reflects an outlook that could find support in positioning shifts from jpmorgan, while diverging from the more cautious stance of bofa.
How other firms see it
Several aligned firms, including jpmorgan, are signaling cautious optimism regarding U.S. economic strength, supporting the notion of a tightening labor market. In contrast, bofa's forecasts indicate skepticism about sustained recovery, suggesting a potential for downward pressure on the USD.
With labor metrics under key scrutiny, tracking EUR/USD could provide insight into sentiment shifts, especially as the European Central Bank grapples with its policy decisions in light of U.S. developments. A similar relationship is expected between USD and inflation indicators ahead of the next Fed meeting.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01December jobs report shows a gain of 50,000 jobs, indicating a cooling labor market.
- 02Stable unemployment rate despite pressures from tariffs and AI adoption.
- 03Market anticipates potential adjustments to Fed's monetary policy in 2026.
Market implications
Traders should monitor USD levels around 1.075, as any deviations could signal a shift in sentiment. Additionally, pay attention to economic indicators that may precede Fed policy announcements, especially employment numbers and inflation data.
Risks to this view
A reversal in the desk's outlook could occur if subsequent employment reports show a significant increase in job creation or a decrease in unemployment claims, indicating a stronger-than-expected labor market recovery. Furthermore, unexpected macroeconomic developments, such as heightened geopolitical tensions, could shift focus away from domestic labor data.
Hi, everyone. Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel.
For the purposes of our conversation today, we will focus in on a U.S. macroeconomic update, including some near-term thoughts on the recently released December jobs report, which came out just about an hour ago. So, with that, joining me here, his first appearance on Top of the Morning for 2026. I'm glad to welcome back asset allocation strategist for the Americas, Paul Schau.
With that, Paul, good morning to you. Welcome back, and thank you for spending some time today with our listeners and their clients. Good morning, Dan.
Nice to be here. Happy New Year. Hot off the press, we do have the December jobs numbers came out this morning at 8.30 So, I'm curious to hear about your initial thoughts, reflections on the data.
And further, can you provide our listeners with a bit of a health check on the state of the U.S. labor market? Yeah, I think it's important to give a certain context to the jobs numbers that we got out today. So, if we take a look at 2025 as a whole, we saw nonfarm payrolls and other metrics at the labor market deteriorate, a much cooler labor market than expected.
You just can see that in some of the headlines. But for recession watchers, it wasn't too concerning yet because the unemployment rate, while edging higher, still remained quite stable and amongst historical lows. And more importantly, initial jobless claims, which is a measure of newly unemployed, remained actually quite stable.
We did have the government shutdown at the end of 2025, which delayed a lot of jobs data. So, there were a lot of question marks about how the labor market would respond to the building effects of tariffs, as well as the broader and broader adoption of AI. So, I think there was a lot of attention paid on this labor market report.
And so, for December, closing out the year, we just got the jobs numbers. And while jobs did gain 50,000, it was less than the 70,000 expected by the consensus on Bloomberg. And we actually had the prior numbers also revised slightly lower.
And we take the three-month moving average of private payrolls, which tend to be a little more stable since it tends to be volatility in government numbers. It slowed to around below 30,000, which is something that I think the Fed will be watching out for. But sort of adding to the confusion, so we have nonfarm payrolls growing at a slower rate than expected.
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