December 06, 2024

“The US non-farm payrolls report will be critical today, with markets currently pricing in only a 67% chance of a rate cut from the Federal Reserve in two weeks’ time. Elsewhere, political uncertainty in France continues to be a big story, and we get some employment data in Canada.”

Tim Hallinan – Trading Director

USD

Today’s non-farm payrolls report is a critical input into the December Fed rate decision and will be dominant in picking a direction for FX today. The survey estimate is for 220K jobs, which would usually be a healthy number. But remember that strikes at Boeing and the Florida hurricanes wiped out around 100K from the October print as they dropped out of the employment figures. Their return to work means that a 220K figure is more like 100K in real terms and definitely a cool enough pace to allow the Fed to look at cutting rates for the third consecutive meeting. Unemployment, which was unaffected by the October’s one-offs, is expected to hold at 4.1%. An uptick in unemployment and a sub-200k payrolls print would confirm the market’s bias for a rate cut, while a >300k print could make policymakers begin to wonder whether a pause might be more appropriate.  There is also a consumer sentiment report this afternoon, and in Canada the employment change report could be the final confirmation needed for next week’s expected 50bp rate cut.

GBP

Sterling is trading at a two-and-a-half-week high this morning, having benefitted again from some dollar softness yesterday. The diary remains sparse until next week’s GDP print, but we did get a speech from the BoE’s Greene yesterday, who concurred with a general feeling that there is very little certainty about the impact of US tariffs on UK and eurozone inflation. There are two factors to weigh here: a) negative impacts on growth and demand, which would likely dampen inflationary pressures; and b) the inflationary impact of supply chain disruption and trade fragmentation. It attests to the fact that, even if we could look into a crystal ball to see what Trump’s economic policy would be, it would still be impossible to predict the market impact. In other news, the CBI slashed its 2025 growth forecast from 1.9% to 1.6%, largely blaming autumn budget tax rises. Today, US payrolls and French political risk are likely to dominate for the pound.

EUR

The euro jumped around 0.7% yesterday without an obvious catalyst, although it appeared to benefit from the French political risk premium cooling at the margin and continued convergence towards a 25bp cut next week in the rates markets. President Macron addressed the country yesterday to promise that he would serve the rest of his term and would get another Prime Minister in as soon as possible. We get a final read of Q3 GDP today, where the 0.4% figure was likely one of the biggest drivers behind the shunning of a 50bp rate cut next week.

Markets

The S&P 500 took a breather from and snapped a four-day streak of record closing highs yesterday, inching lower by 0.2%. Despite the government falling in France this week, yesterday was the CAC 40’s sixth consecutive daily gain – its best since May.

Main Economic Events (All Times CET)

2:30pm: US Non-Farm Payrolls
2:30pm: Canadian Employment Change
4:00pm: US UoM Consumer Sentiment

To learn more about Ballinger Group, please visit our website or our LinkedIn page.