market:
- S&P index rose by 1.26%
- NASDAQ index rose by 1.77%
- Crude oil rose $0.86 to $73.98.
- Gold fell -$19.08 or -0.72% to $2638.45
- Bitcoin rose $1,400 to $98,314
In the US debt market, yields are higher with the shorter end:
- US 2Y T-NOTE: Yield: 4.2807%, Change: 3.3 bps
- US 3Y T-NOTE: Yield: 4.3222%, Change: 3.8 bps
- US 5Y T-NOTE: Yield: 4.4136%, Change: 3.4 bps
- US 10Y T-NOTE: Yield: 4.5995%, Change: 2.5 bps
- US 30Y T-BOND: Yield: 4.8141%, Change: 1.6 bps
In today’s US trading session, the ISM Manufacturing PMI was stronger than expected at 49.3 compared to the estimate of 48.4. That was the highest level since March when the index peaked at 50.3. Before March, the last time the index was above the 50 level was October 2022. The low for 2024 was in October at 46.5.
The new orders index reached 52.5, which was the highest level for 2024 (reached in January 2024). Both months were the highest levels back in May. 2022. The 2024 low was 44.60.
Not so good was the index of prices paid up to 52.5. Although lower than April’s high of 60.9, it was also above the low for the year of 48.0 reached in September.
The employment component softened to 45.3 with a 2024 low of 43.4 reached in July and a 2024 high of 51.10 reached in May 2024.
Two members of the Fed spoke today. Richard Fed Pres. Barkin spoke in the morning. While Fed Governor Kugler spoke shortly after US stocks closed with CNBC.
As for Barkin, he:
He conveyed a cautiously optimistic outlook for 2025, highlighting a positive baseline with more upside risks than downside. He emphasized that strong employment and asset values are critical to sustaining consumer spending. While inflation remains above target and requires further work, Barkin noted that core core inflation is showing signs of improvement and expects 12-month inflation to moderate due to base effects.
He pointed out that monetary policy in 2025 will likely take a backseat to economic fundamentals and geopolitics, and that the Fed will be well prepared to respond as needed. Barkin acknowledged reduced financial market uncertainty and a growing understanding that long-term rates may not fall as much as previously expected, in part due to pressures from rising U.S. debt. He also mentioned healthy demand for housing relative to supply and the likelihood that the labor market will favor increased hiring over layoffs.
Despite these upsides, Barkin identified risks, including potential risks of rising inflation and concerns from businesses about how the changes will affect their operations. He emphasized the need to remain restrictive for longer, given the inflationary risks, and indicated that the conditions for a rate cut will require confidence in the return of inflation to 2% or a weakening of demand. In addition, he noted that consumers are becoming more price sensitive and that the pass-through of tariffs to prices is complex, depending on supply chains and consumer price elasticity. Overall, Barkin underscored the need for vigilance as we navigate the economic challenges ahead.
For Fed’s Kugler, she:
She shared an optimistic view of the US economy, highlighting its resilience and a strong finish through 2024. She noted that the disinflation process is underway, supported by a gradually cooling but stable labor market, with historically low unemployment and rising real wages. Kugler highlighted productivity as a key factor in maintaining a healthy economy with disinflation and expressed optimism about its future role. While immigration has been helpful in balancing the labor market, he acknowledged uncertainty about future immigration trends and the economic impact of tariffs, which may depend on their durability.
Kugler also emphasized the Fed’s cautious approach as it moves through a wide range of economic scenarios and monitors inflationary pressures, which could remain sticky. She reiterated that policy decisions will remain data-driven and suggested the Fed has the flexibility to take its time when considering future rate cuts. He declined to comment on the new administration’s policies, focusing on the broader economic picture.
The US dollar was lower against all major currencies with the exception of the CAD. CAD was the strongest of the major currencies. A snapshot of major currencies versus the US dollar shows:
- EUR -0.42%
- JPY -0.16%
- GBP -0.32%
- CHF -0.44%
- CAD +0.33%
- AUD -0.13%
- NZD -0.30%
During the trading week, the USD was mixed against the major currencies
- EUR +1.08%
- JPY -0.34%
- GBP +1.21%
- CHF +0.71%
- CAD +0.22%
- AUD unchanged
- NZD +0.28%
next week, the US and Canadian employment report will be released on Friday. US non-farm payrolls are expected to show a gain of 154,000 versus 227,000 last month. The unemployment rate is expected to remain stable at 4.2%. It is also expected that the unemployment rate will remain unchanged compared to the month (6.8%), with a change in employment of +24.5 thousand compared to 50.5 thousand last month.
Other data for the week include
- ISM services PMI on Tuesday. Expectations are 53.2 to 52.1
- JOLTS jobs are expected to rise modestly to 7.77 million from 7.74 million
- ADP Change in non-farm employees is expected at 131 thousand compared to 146 thousand last month.
- The minutes of the FOMC meeting will be released on Wednesday at 2 p.m. The Fed cut rates by 25 basis points at its last meeting, but also forecast 2 rate cuts in 2025, up from 4 rate cuts in its previous estimate in September.
