US Labor Market in Trouble, Dollar Loses Ground

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The United States Bureau of Labor Statistics reported final week that non-farm payrolls stood at 245,000, which is decrease than expectations of 469,000 and final month’s 610,000. Average hourly earnings climbed by 4.4 % in November (year-on-year) whereas gaining 0.3 % in month-to-month phrases. The unemployment fee was at 6.7 % in November, an enchancment from the earlier month’s 6.9 % and surpassing forecasts of 6.8 %.

The sharp deceleration of employment means that the US financial restoration might take longer than beforehand anticipated. Some analysts discovered the report disappointing and interpreted it as an indication of financial hassle.

The COVID-19 state of affairs itself doesn’t help optimistic narratives, as circumstances preserve surging. So far, 14,983,425 coronavirus circumstances have been reported within the United States, in addition to 287,825 deaths, making it probably the most affected nation on this planet. Hospitalization and deaths not too long ago hit report ranges, which can be linked to the latest Thanksgiving celebrations that had been held throughout the nation.

Paradoxically, this information was taken positively by the inventory markets, as US shares closed in primarily constructive territory on Friday. The Dow Jones Industrial Average gained 0.83 % through the session, closing on the 30,218.26 stage, adopted by the S&P 500 which gained 0.88 % through the session and closed on the 3,699.12 stage. The NASDAQ 100, which closed on the 12,528.48 stage, gained 0.49 % through the session.

Attention is on the Federal Reserve, which is now anticipated to spice up its bond-purchasing program in an try and stimulate the US financial system. This thought was considerably confirmed by Federal Reserve Chairman Jerome Powell’s latest feedback concerning the path that the financial institution is taking within the close to future.

“We are going to keep our rates low and keep our tools working until we feel like we really are very clearly past the danger that is presented to the economy from the pandemic,” he said.

Additional fiscal stimulus is also a possibility. Though negotiations on a new stimulus package are yet to resume, new proposals are now being considered in the U.S. Senate.

Economic Calendar

The markets received important and relevant data about the current state of the US economy.

Among the most relevant reports was the Chicago Purchasing Managers’ Index for November, which signaled an expansion of the business sector across the states of Illinois, Michigan and Indiana. The reading stood at 58.2, below the previous month’s 61.1 and lower than expectations of 59. The Pending Home Sales Index dropped by 1.1 percent, below predictions of a 1 percent surge but better than the previous month’s figure.

Markit Economics reported the Manufacturing PMI on Tuesday, which showed an expansion of the sector but remained below expectations of a steeper expansion and the previous month’s 59.3.

November’s employment change figure was reported on Wednesday, which stood at 307,000, lower than expectations and the previous month’s figure.

The Service PMI was released on Thursday, signaling (again) a slower expansion of the sector with a final reading of 55.9. Expectations were of 56, and the previous month’s reading stood at 56.6.

US Dollar Loses Steam for the Second Consecutive Week

The US Dollar Index, which measures the greenback’s performance against a bundle of its main competitors, lost ground for the second consecutive week and dropped by 1.19 percent. The dollar went down by 0.65 percent last week, which resulted in a drop of 2.31 percent for November.

Many analysts attribute this weakness to the fact that investors are currently rushing towards riskier assets, now that the hopes for a vaccine are high.

Some of these analysts expect this weakness to persist through 2020, as they expect additional monetary stimulus. Others predict that the dollar’s and equity markets’ performance-inverse relationship will remain relevant in the near future.

“We forecast another 5-10% dollar decline through 2021 as the Fed allows the U.S. economy to run hot,” said analysts at ING.

US Economic Data Worse Than Expected

In its last report, the Bureau of Economic Analysis reported that the gross domestic product rose by 33.1 percent in the third quarter (quarter-on-quarter), below expectations of 33.2 percent and after decreasing by 31.4 percent in the second quarter.

Inflation has been low, at least compared to the Federal Reserve’s inflation target. In yearly terms, the Consumer Price Index missed analysts’ expectations, climbing by 1.2 percent in November after an increase of 1.4 percent in the previous month. In monthly terms, the CPI stood at 0 percent, below forecasts of a 0.1 percent increase and lower than October’s 0.2 percent.

As mentioned, the unemployment data turned out to be disappointing, standing at 6.7 percent in November. While this did not meet expectations, it was lower than the previous month’s 6.9 percent.

At the moment, cash rates remain at 0.25 percent. The Federal Reserve’s upcoming cash rate announcement is set to take place on December 16.


Upcoming Events

  • On Tuesday, the Energy Information Administration will be releasing its short-term energy outlook.

  • On Wednesday, the US Bureau of Labor Statistics will be publishing its JOLTs Job Openings report.

  • Also on Wednesday, the Energy Information Administration will be reporting about the Crude Oil inventories level.

  • Core CPI data for November will be reported on Thursday, as well as initial jobless claims.

  • On Friday, the U.S Bureau of Labor Statistics shall be releasing the Producer Price Index.

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