06 December 2024 - Market watchers await crucial labor data amid uncertainty over Trump's policies and the Fed's future moves. November's job numbers are expected to rebound from October's hurricane and strike-impacted data, with economists forecasting 218,000 new payrolls. Meanwhile, gold prices remain range-bound ahead of the jobs report, and oil faces pressure despite OPEC+'s production delay.

Storms, Strikes, and Stats: Unpacking November's Labor Market Puzzle

Traders are awaiting critical data that could provide more clues about the Federal Reserve's future policy path under the uncertainty surrounding the potential effects of policies from President-elect Donald Trump. Nonfarm payrolls and unemployment data, scheduled to be released later in the day, will be the last key labor market indicators before the Fed's December 18 meeting, where it will set its projections for 2025.

Many economists expect a rebound in November's data as the effects of hurricanes and worker strikes that hit multiple states began to fade. According to the median forecast in a Bloomberg survey of economists, payrolls are projected to have increased by 218,000 last month, following a 12,000 gain in October.

Deutsche Bank economists estimate that the return of workers sidelined by temporary factors in October will contribute approximately 80,000 to payroll growth. Bank of America economists suggest this number could exceed 100,000.

To better understand labor market trends, both policymakers and economists are closely monitoring the three-month average payroll growth. The consensus points to an average gain of 151,000, indicating a decline from earlier this year.

Recent months have seen hurricanes and strikes inject significant noise into job data, making it challenging to interpret labor market dynamics clearly. However, the broader picture suggests that while the U.S. labor market is cooling, it remains robust.

Data released earlier this week supports this view. On Monday, the manufacturing employment index rose to its highest level in over two years. On Tuesday, the JOLTS job openings report exceeded expectations, rising to 7.74 million. The report also indicated a decline in layoffs and steady labor demand.

Additionally, the ADP Employment Change report released on Wednesday showed that private-sector payrolls declined compared to the previous month but aligned with expectations. Meanwhile, a separate report released on Wednesday revealed that the services employment index had dipped from the previous month but remained in expansion territory.

Lastly, weekly jobless claims released on Thursday rose to a one-month high, while continuing claims declined. Initial jobless claims for the week ending November 29 increased by 9,000 to 224,000, surpassing the median economist forecast of 215,000. Meanwhile, the measure of individuals continuing to receive unemployment benefits fell to 1.87 million, down from the previous week.

Some economists interpreted Thursday's data as statistical noise rather than a sign of increasing labor market weakness. According to U.S.-based job placement firm Challenger, Gray & Christmas, planned layoffs have risen by only 5.2% so far this year.

Official data from the U.S. Bureau of Labor Statistics also indicates that, despite significant planned layoffs in the technology and automotive industries, the overall layoff rate remains low. Therefore, while weekly unemployment claims may show fluctuations, many economists do not see a meaningful rise in layoffs and expect the unemployment rate to remain steady at 4.1%.

However, some economists argue that displaced workers and new labor market entrants are struggling to find jobs and that the current pace of job creation may not be sufficient to maintain the unemployment rate at its current level. They predict the unemployment rate could rise to 4.2%. As a result, the unemployment rate data set to be released later today will provide crucial insights into the U.S. economy's job creation capacity.

Today's data is perhaps the most critical labor market indicator ahead of the Fed's final meeting of the year. Fed policymakers have cut borrowing costs by three-quarters of a percentage point this year to prevent further cooling in the labor market. Given the current backdrop---where progress on inflation has stalled and the economic effects of Trump's policies remain uncertain---a deterioration in the labor market could deter the Fed from slower rate cuts next year.

Ultimately, the data released today has the potential to influence not only the rate decision two weeks from now but also the Fed's projections for 2025.

The Gold Market in Limbo: Will Jobs Data Break the Stalemate?

Gold prices have been fluctuating within a narrow range since the start of the week, reflecting market indecision. Critical U.S. data set to be released this evening could serve as a catalyst for gold traders.

Futures markets are pricing in a 72% probability of a quarter-point rate cut at the December 18 meeting. However, upcoming labor market data could influence the Fed's policy outlook, which seems to be keeping gold traders from making aggressive directional bets before the data is revealed.

Lower interest rates are positive for gold, so weak labor market data that pushes the Fed toward cutting rates could drive upward momentum in gold prices. Conversely, strong labor market data could reduce the appeal of non-yielding gold, increasing downward pressure on prices.

Geopolitics, Oversupply, and China: Will Oil Find Its Spark?

Oil prices fell despite OPEC+ announcing a decision to delay production increases for another three months, as the move was insufficient to improve market sentiment for the period ahead.

OPEC and its allies revealed plans to postpone production hikes until April, after which they aim to increase output gradually over 18 months at a slower pace than previously planned, starting with a modest rise.

Concerns over a supply surplus next year, coupled with reduced geopolitical risk premiums, remain the primary factors weighing on oil prices. While surplus forecasts for next year have decreased, economists still anticipate an oversupply. Morgan Stanley analysts have revised their price forecasts for the third and fourth quarters of next year upward from $68 and $66 to $70 per barrel.

Meanwhile, traders will closely monitor the upcoming Central Economic Work Conference in China, where the country's top officials will convene next week. The conference, set to begin behind closed doors on Wednesday, is expected to conclude with announcements of economic targets and stimulus plans for 2025. If the announced measures boost optimism about Chinese demand, it could lead to a rise in oil prices.

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