Sunset Market Commentary

The Bank of England released its most recent Decision Maker Panel, surveying CFO’s of companies spanning all sizes. Firms reported that their output prices rose at an annual rate of 5.9% in the three months to December, down from 6.6% in the November report. The year-ahead gauge remained unchanged at 4.4%. CPI inflation expectations for the year ahead fell from a three-month moving average of 4.6% in November to 4.3% last month.

It's Payrolls Day

The first week of January will be concluded with the December Jobs Report at 14:30 CET, and ISM services index at 16:00 CET. Recent data (Claims/ADP/JOLTs) has generally supported the narrative of robust US labour market conditions in December, and we forecast non-farm payrolls at +170k and average hourly earnings growth at 0.2% m/m seasonally adjusted. In light of ISM services, PMIs warrant a slight improvement in December, while consensus calls for a slight decline.

Main Dish Will Be December Payrolls and Services ISM

The main dish will be served at the start of US dealings with December payrolls and services ISM. Yesterday’s consensus-beating labour market data extended the bond sell-off which started in Europe. US yields closed 5.4 bps (2-yr) to 8.3 bps (10-yr) higher. The US 10-yr yield regained the psychologic 4% mark and similarly tries to escape the downward corrective channel in place since the November Fed meeting. 38% retracement on the autumn 2023 downleg is located at 4.25%.

EUR/USD Slips, Eurozone Inflation Rises

Eurozone inflation has been falling and dropped to 2.4% y/y in November, within striking distance of the 2% target. The downward trend reversed itself in December, as CPI jumped to 2.9%, just below the consensus estimate of 3.0%. This was the first uptick in inflation since April. There was better news from Core CPI, which dropped to 3.4% y/y, matching the consensus estimate and down from 3.6% in November. This marked the lowest level for the core rate since March 2022.

US: Job Growth Picks Up to End 2023, But Unemployment Rate Unchanged  

Quite the surprise from the U.S. labor market as job gains blew past expectations for the month. But December's upward surprise must be weigh against the 71k downward revisions to the prior two months. The trend is still the Fed's friend as the pace of hiring continues to slow, particularly for the private sector. The overall picture is one of restrictive monetary policy continuing to work through the economy and cool labor demand.

US Jobs Data a Setback But No Game Changer

The first US jobs report of the year was an early reminder to investors that things don't always go their way, despite the experience of the last couple of months.

Week Ahead – Market Spotlight Turns to US CPI Inflation

The US dollar staged a decent recovery during the first week of the year, with market participants scaling back some basis points worth of rate reductions expected by December, although the total number of rate cuts anticipated by investors is still way larger than the amount of rate cuts indicated by the Fed’s December dot plot.

U.S. Inflation Data in Focus as Central Banks Consider Rate Cuts

U.S. inflation numbers will be front and center for the Fed as discussions among policymakers shift from how high to push interest rates to when the first cuts might be appropriate.

The Weekly Bottom Line: Rate Cut Expectations Ease Slightly at the Start of 2024

Minutes from the December FOMC meeting confirmed that monetary policy was “likely at or near its peak” for this tightening cycle, but showed no meaningful discussion on rate cuts.

Weekly Economic & Financial Commentary: Wait a Minute

The minutes from the FOMC's mid-December meeting suggest the committee aims to remain restrictive, though it acknowledges it may be cutting rates this year should recent progress on inflation continue. Despite market yearning for cuts, there was no large debate around when to start lowering rates.