Strong Labor Data Sends Short Term Rates 10+ Bps Higher

Labor data catapults rates higher. Strong labor data sent rates as many as ~13bps higher at the short end of the curve. The long end saw smaller gains, as 20 and 30-year Treasury yields rose ~5bps. Inflation forecasts slightly pulled back rates, headlined by 1-year inflation expectations of 3.1% versus the 4.3% forecast. The dollar reached its intraday peak just after the labor data release and rose on the session, the dollar spot index up nearly 0.50%. 

November labor data surprises to the upside. Nonfarm Payrolls beat expectations (199k Act. vs. 185k Est.), soaring above last month’s figures as striking auto workers rejoined the workforce. New hiring was observed in healthcare, hospitality, and government. The combined takeaway from stronger wages (+0.4% MoM), more hiring (NFP) and a lower unemployment rate (3.7% Nov. vs. 3.9% Oct.) is that a soft landing might be possible; Fed cutting bets deflated on the surprise results.

Inflation data expected to produce mixed results ahead of FOMC decision. Next week’s CPI and PPI will be the last significant prints for the Fed to consider before finalizing their December FOMC decision. Especially of note are forecasts for headline MoM prints, with CPI expected to remain flat at 0.0% and PPI to rise from -0.5% to 0.1%. Though Fed funds futures have effectively locked in pauses at the next two meetings, high inflation levels could shift rate cut expectations back towards mid-to-late 2024. A 25bp cut is currently seen as ~45% likely in March.