The US jobs report for December 2024 was released at 8:30 a.m. ET and showed strong job growth, with non-farm payrolls increasing by 256,000, significantly beating expectations of 160,000 . The unemployment rate fell to 4.1% (unrounded 4.0855%), lower than the expected 4.2%. The labor force participation rate remained stable at 62.5%, while the broader U6 underemployment rate fell to 7.5% from 7.8%. Average hourly wages also rose by 0.3% month-on-month (in line with expectations) and 3.9% year-over-year, slightly below the 4.0% forecast. Private payrolls added 223,000 jobs, far exceeding the 135,000 expected, while manufacturing payrolls declined by 13,000 versus an expected gain of 5,000. Government jobs increased by 33,000. The strong report contrasted with weaker survey data, boosting the US dollar with significant gains in currency markets.
US yields rose and the yield curve flattened a bit. The two-year yield rose 12.1 basis points to 4.383%. The 10-year yield rose 8.0 basis points to 4.7613%. The 10-year yield is at its highest level since November 2023. The yield also rose nearly 120 basis points from 3.60% to today’s 4.788%. During that time, the Fed cut rates by 100 basis points.
Later came the University of Michigan sentiment index which was 73.2, down from 74.0 last time. During the year and five-year inflation expectations rose to 3.3% from 2.9% and 3.1% respectively. That added another level of negativity to the US stock market, which was already moving lower after a day of mourning for the former president. Carter.
The major indexes will close sharply lower led by the Russell 2000 which fell by -2.22%. The technologically advanced NASDAQ index was also under pressure, falling by -317.25 points or -1.63%. The good news is that at the lowest levels of the session, the index fell by -460 points. It could have been worse.
The Dow industrial average fell by almost -700 points or -1.63% and the S&P 500 index fell by -91.21 points or -1.54%.
On the foreign exchange market, the dollar was generally higher (it fell against the JPY). A snapshot of major currency changes against the US shows:
- EUR: +0.52%
- JPY: -0.27%
- GBP: +0.78%
- CHF: +0.48%
- CAD: +0.25%
- AUD: +0.84%
- NZD: +0.80%
AUDUSD fell to lowest level since April 2020. NZDUSD fell to lowest level since October 2022.
The dollar’s gain against the CAD moderated (+0.25%) as Canada also released strong employment data with a change in employment of 90.9k and the unemployment rate falling to 6.7% from 6.8% last month
The Fed’s Goolsbee tried to bring about a positive market reaction. Goolsbee expressed optimism about the stability of the labor market after the latest jobs report, noting strong private-sector retail hiring while questioning whether that indicates strong consumer activity or a one-off trend.
Speaking on CNBC, he stated that he is the labor market is not driving inflation, with an annual inflation rate of 1.9% over the past six months. Goolsbee attributed the rise in long-term rates to higher-than-expected growth and a slower-than-expected pace of Fed rate cuts, but forecast significantly lower rates in 12-18 months if expectations hold. He highlighted recent progress in containing inflation despite high annual rates reflecting last year’s spike and emphasized the importance of monitoring productivity figures.
Meanwhile, Bank of America says it no longer expects interest rate cuts in 2025. Goldman Sachs cut its forecast to increase 50 basis points in 2025 by -75 basis points.
Year-end probabilities show a 28% chance of no change, a 40% chance of 25 basis points and a 23.5% chance of a 50 basis point cut.
Next week, US CPI data will be analyzed due to the increase in inflation. Corporate earnings are also starting to break free from traditional finance.