Top of the Morning: Nov Jobs Report, Fed roundup, & the week ahead
The latest U.S. employment data suggests a continuing softening in the labor market, with November seeing a job addition of 227,000 versus a consensus of 220,000, but a rise in the unemployment rate to 4.2% indicates potential challenges ahead. Per the full note from UBS, the three-month average for job growth has improved to 173,000 from a low of 123,000 last month, but the overall trend seems to point towards moderation. As the Fed assesses this labor market backdrop while preparing for 2025, traders should be mindful of potential impacts on currency movements, especially in key pairs like USD/EUR.
What the desk is arguing
The desk contends that the recent labor market data, while better than previous months, points to a nuanced and possibly deteriorating economic environment. In Mike Gord's evaluation, the job addition figure for November reflects a rebound but still embodies underlying risks, particularly with an uptick in the unemployment rate impacting overall confidence.
The reported increase in the unemployment rate and average hourly earnings in November could influence Fed policymakers' stance on interest rates moving forward. With unemployment rising slightly to 4.2%, and considering the recent volatility caused by strikes and weather events, this narrative aligns with the desk's positioning on the cautious outlook for the USD.
Where it sits in our coverage
Our current consensus target for the USD/EUR pair is 1.075, with a range between 1.04 and 1.12. Notably, both jpmorgan predicts a target of 1.10 for March 2026, while bofa takes a more bearish stance with a target of 1.04 during the same tenor.
The desk's call leans towards the central to upper end of the forecast range, reflecting a belief in the narrative of a softening job market influencing monetary policy adjustments.
How other firms see it
Aligned firms such as jpmorgan and others share a relatively optimistic view regarding a maintained USD strength, while bofa presents a contrary outlook anticipating possible weakening.
Expect movements around pairs like USD/EUR and USD/JPY, which are expected to reflect the evolving monetary landscape as influenced by the Fed's assessment of recent labor data.
What the calendar says
No significant upcoming economic events are scheduled for the next 30 days that would directly impact the labor market narrative or monetary policy signaling.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The November jobs report shows a slight rebound but with concerns regarding the unemployment rate.
- 02The Fed's policy approach in 2025 will likely be influenced by the softening labor market.
- 03Current market positioning reflects a balance of cautious optimism regarding USD strength.
- 04Expect currency movements to correlate with underlying employment trends and Fed communication.
Market implications
Watch for potential resistance levels around 1.075 in USD/EUR as traders digest the softening labor market signals. Any comments from Fed officials regarding monetary policy could further shape sentiment, especially concerning interest rates moving into 2025.
Risks to this view
A reversal could occur if the forthcoming employment data showcases significant job growth or if inflation metrics prompt a more hawkish Fed stance, thus altering the current view on USD strength. Additionally, geopolitical events could unexpectedly sway sentiment in currency markets.
Hi everyone, Siobhan Chapman here, and welcome to Top of the Morning on the UBS Market News Podcast channel. It's Friday morning, which means it's time for the Week in 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 November employment report, as well as the current rate outlook through 2025.
Joining us for the conversation, I'm glad to welcome back Mike Gord, Asset Allocation Strategist Americas, with the UBS Chief Investment Office. Mike, thank you so much for joining us. Hey, Siobhan.
Good morning. Happy Friday. Happy Friday.
So, let's get started. Let's begin with the November employment report. How did the data come in, and how would you characterize the current health of the U.S. labor market?
Yeah. So, at a high level, I think I'd characterize the labor market as continuing to soften. So, today, we got the print of 227,000 jobs, just above consensus expectations of 220,000.
And this print came with a prior two-month revision of positive 56,000 jobs. So, it's important to put that in context of recent, you know, prints. So, last month, we got just 12,000 jobs versus a consensus of 110,000.
That also came with a negative revision of 112,000. So, last month was very weak from kind of that headline view. You know, that said, we know that last month's data was going to be noisy because we, you know, that coincided with the hurricanes Helene and Milton, as well as large-scale strikes.
So, we saw a little bit of a rebound from last month's report here. So, importantly, today's number brings the three-month average to 173,000 jobs. That's up from 123,000 after last month's, you know, low print.
Notably, unemployment rate kicked up a tenth of a percent to 4.2%. And average hourly earnings also ticked up a tenth of a percent on the month-over-month and year-over-year basis. So, there's clearly some weakening, you know, that we've seen in the back half of the year, but it has come in an orderly manner, and in an orderly manner enough that it gives regulators and the Fed specifically comfort that they have this dynamic under control.
And to that, the implied probabilities in the market of the Fed cutting at their next meeting didn't move much in response to the data this morning, and it's still around a three-in-four chance of a 25-basis point cut from the market's view. Thank you so much for that overview, Mike. So, this week, we also heard from a number of Fed speakers.
What did you take away from their remarks, and what is CIO's current rate outlook? Yeah, there were quite a few media appearances by Fed speakers this week. We had Waller, Daley, and Powell, of course.
I would characterize their remarks as consistent with the message they've been running with the past few meetings, and that's really just that, you know, economic activity looks strong and monetary policy is in a good place. Powell was specifically quoted saying, I feel very good about where the economy is and where monetary policy is. And so, here in CIO, we tend to agree, and we have a similar expectation for the path of interest rates, as the Fed's most recent dot plot has shown.
So, with that, we expect them to cut 25-basis points at the meeting in a couple of weeks, December 17th to 18th. And then, in 2025, we expect them to slow the pace of cuts to about one-quarter through the next year. So, between now and the end of 2025, we have penciled in 125-basis points of cuts.
That all being said, there's certainly the potential for things to shake up next year as the incoming administration starts tackling their policy priorities. You know, some of those proposals, like tariffs, may cause, you know, inflation to reaccelerate or expectations to jump. And so, the Fed's going to have to remain nimble in the face of conditions that can change rapidly.
So, it's likely not going to be a smooth path lower next year, but lower is kind of the direction of travel we see. So, Mike, we are coming to the end of our conversation, and I want to turn to next week. What is taking place that investors should be mindful of?
Sure. So, actually, before next week, later this morning, I'd point out the University of Michigan survey results. So, specifically, I'm going to be watching the 5- to 10-year inflation expectations.
You know, this is one of the early places we'll see any type of de-anchoring of inflation expectations in the face of, you know, inflationary proposals from an incoming administration. So, that's going to be something that I'll be watching, you know, both earlier this – or later this morning and in the months to come. But turning next week, the focus is really going to be on the inflation data for November.
Here in CIO, you know, we're not expecting anything that's going to surprise markets. But it will be worth watching to see if some of the stickier parts of that indicator, like the shelter inflation component, are still going to show signs of disinflating or if they're kind of getting stuck at higher levels. So, the inflation print next week is going to be kind of the last critical data point for the FOMC before they head into their meeting in a couple of weeks.
So, assuming no surprises in that reading, it will affect that the markets are going to shift towards more fully pricing that 25 basis point cut at the upcoming meeting. So, big one is CPI next week. Perfect.
Thank you so much. And thank you so much for joining us, Mike. Of course, Siobhan.
Thanks for having me. Have a great weekend. Have a great weekend, Mike.
Again, today we have been joined by Mike Gord, Asset Allocation Strategist Americas with the UBS Chief Investment Office. Thank you for tuning in. Be sure to visit ubs.com slash studios to view the entire UBS Studios suite of podcast channels along with our video offerings, such as UBS Trending.
You can also follow us on Instagram for content highlights at UBS Trending. UBS Studios is part of the UBS Chief Investment Office within UBS Global Wealth Management. Visit ubs.com slash CIO to view the latest research.
UBS Chief Investment Office's investment views are prepared and published by the Global Wealth Management Business of UBS AG or its affiliate UBS. This material has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and is published for informational purposes only. As a firm providing wealth management services to clients globally, UBS AG and its subsidiaries offer both investment advisory services and brokerage services.
Investment advisory services and brokerage services are separate and distinct, differ in material ways, and are governed by different laws and separate arrangements. In the USA, UBS Financial Services, Inc. is a subsidiary of UBS AG and a member of FINRA SIPC. For information, please visit our website at ubs.com forward slash working with us.
For a full legal disclaimer applicable to the independent investment views produced by UBS, please visit our website at ubs.com forward slash CIO dash disclaimer.
Sources & References
How we cover this story