US labour market beats expectations in November

The US labour market added 199,000 jobs in November, ahead of market expectations and an improvement on the 150,000 added a month earlier. The November print was helped by the return of auto-sector workers from strike action that they had taken. There were also job gains in manufacturing, health care, leisure and government while retail employment actually fell last month. A large increase in the household survey (747,000 m/m) helped to bring the unemployment rate to 3.7%, down from 3.9% a month earlier. Overall the nonfarm payrolls for November was a broadly positive report even if some of the details suggest activity is cooling. The Federal Reserve sets policy on December 13 and we expect no change at the FOMC meeting.

The University of Michigan consumer sentiment survey improved for December to 69.4, up from 61.3 a month earlier. There were improvements in both the consumer expectations and current conditions component of the index. Near term inflation expectations dropped sharply, down to just 3.1% for the one-year ahead measure, down from 4.5% a month earlier while the longer term inflation expectations (5-10 years) fell to 2.8% from 3.2% a month earlier. Gasoline prices have dropped steadily over the last several months, down almost 19% by early December from a mid-September 2023 peak while equity prices have also improved in recent weeks, likely helping to foster a sense of better economic conditions among consumers.

The Reserve Bank of India kept policy rates unchanged at its meeting on December 8, holding the repurchase rate at 6.5%. The RBI noted “uncertainties in food prices” as a potential risk to a reacceleration in inflation over the coming months after headline CPI dropped to 4.9% for October. The RBI has held policy unchanged since it hiked by 25bps in February this year as inflation is still above target, according to governor Shaktikanta Das.

Dubai has announced it will cut emissions by 50% by 2030 compared with a 2018 baseline. The UAE overall has a net zero emissions target of 2050 and upgraded its nearer-term target to a 40% drop from business as usual levels by 2030.

Inflation in Egypt slowed to 34.6% y/y in November, down from 35.8% a month earlier according to government statistics for urban CPI. On a monthly basis, the CPI index added 1.3% in November. Food prices remain particularly elevated, up 64.5% y/y in November while furnishing and transport costs continue to be high.

Today’s Economic Data and Events

• 11:00 TU Industrial production m/m October

Fixed Income

• The stronger than expected nonfarm payrolls report helped to push US Treasury yields higher at the end of the week with the 10yr UST rising to more than 4.25%. The 2yr UST yield closed up almost 13bps at 4.7209% while the 10yr settled about 8bps higher on Friday at 4.2256%. Markets had been pricing in a greater than 50% chance of a 25bps cut from the Fed by the March meeting but pared back expectations to around 44% after the release of the data. The data was generally inline with a cooling of the economy but not a collapse in labour market conditions.
• Bond markets generally closed weaker on Friday in response to the nonfarm payrolls report and the expectation that the Federal Reserve won’t be rushing to ease policy. Gilt yields added 7bps to 4.035% while 10yr bund yields added almost 9bps to close the week at 2.273%.
• GCC credit settled lower on Friday across both IG and high-grade paper. However, the region performed better than the overall emerging market space.

FX

• The dollar benefitted from the stronger labour market data out of the US at the close of the week. EURUSD settled lower by about 0.3% to 1.0763 on Friday, extending a downward move over much of the week. Sterling also dropped on Friday, down about 0.4% at 1.2549. Both the Bank of England ECB meet this week but no change is expected.
• The Japanese yen gave back some of its recent gains on Friday, with USDJPY up 0.6% to 144.95 though the pair still managed a decline of 1.3% for the week as a whole.
• USDCAD had a choppy trading session at the end of the week but managed to move in favour of the loonie with a 0.1% drop in USDCAD on Friday. Elsewhere among commodity currencies AUDUSD fell 0.4% to 0.6579 while NZDUSD dropped 0.8% to 0.6124.

Equities

• The stronger than anticipated US jobs numbers failed to parry the steady gain in equities. The S&P 500 closed up 0.4% on Friday while the Dow added about the same amount while the NASDAQ was a little stronger with a near 0.5% gain.
• European markets also rallied with the EuroStoxx index up 1.1% and the FTSE rallying 0.5%.
• In local markets, the DFM fell 0.1% on Friday while the ADX settled lower by nearly 0.8%. The Tadawul started the trading week on a stronger footing with a 0.6% gain.

Commodities

• Oil markets managed to claw back some of their weekly losses on Friday with the first gains for Brent and WTI in the last seven sessions. Brent added 2.4% to close at USD 75.84/b while WTI added 2.7% to settle back above USD 71/b after spending the prior two sessions below USD 70/b.
• The US department of energy announced it would buy 3m bbl of sour crude for March delivery, extending its replenishment of strategic reserves. SPR stockpiles are near historic lows but have hit a bottom in recent weekly prints.