Daily Market Color

Employment Report Provides Further Support for December Rate Hike

Mostly Positive Employment Data

The Labor Department’s employment report for November displayed persistent strength in the jobs market as the number of new nonfarm payrolls totaled a seasonally adjusted 228,000 (+195,000 expected) while the unemployment rate held at a 17-year low of 4.1%.  Employment growth was broad across most industries, highlighted by payroll additions in manufacturing (+31,0000) and construction (+24,000), which were largely a result of rebuilding in the Southern regions damaged by the hurricanes during September.  Other positives in the report included the underemployment rate at 8% (11-year low) and a 62.7% labor force participation rate (historical).  Average hourly earnings represented the lone disappointment in the data, as wage growth totaled 0.2% MoM (+0.3% expected) in November in addition to the downward revisions that were made to the previous two months.



All three major US stock indices finished 0.4%-0.6% higher on the day, driven by the strong jobs report and news of the avoidance of a government shutdown. Crude oil jumped 1.2% due to a rebound in the demand for imported oil in China. Bond yields are marginally higher than they were at the start of this week with the 10yr Treasury currently yielding 2.377%. Key economic events next week include the release of CPI data for the month of November and the FOMC’s December meeting. Currently Fed Funds futures imply the probability of a 25bps rate hike is 98.3%. The Fed Statement and other releases will be closely scrutinized by the market for future rate action. 



Breakthrough on Brexit

Across the pond, this morning UK Prime Minister Theresa May announced that an agreement had been made on the terms for the initial phase of Brexit, effectively ending six months of negotiations on several sensitive topics including a financial settlement, EU citizens’ rights in the UK, and treatment of the Irish border.  The news comes as a relief to global financial markets, as just two days earlier a meeting between May and European Commission President Jean-Claude Juncker ended abruptly after discussions around the Irish border proved to be more difficult than anticipated.  On December 15th, EU leaders will meet to formally decide whether to push through the divorce terms or not, and if approved, the next step of negotiations on trade measures and the post-Brexit transitional period could commence as early as the beginning of 2018.  British stocks jumped 1% following the report.


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