US stocks got off to a cautious start, with investors awaiting jobs data, but managed to see modest weekly gains. Market reaction to Friday’s non-farm payrolls report was positive, with employers added a higher-than-expected 199,000 jobs in November, while the unemployment rate eased to 3.7%. Furthermore, the University of Michigan’s consumer sentiment index rose to 69.4 in November, with inflation expectations falling. Markets are growing more confident that the economy will achieve a soft landing. This week the Federal Reserve will meet for its final time this year, with the central bank expected to keep rates on hold and the focus turning on whether the first rate cut could come as soon as March next year.
For the week the Nasdaq Composite advanced 0.7%, closing at its highest level since April 2022, while the S&P 500 added 0.2% to close at its highest level since March 2022 and logging a sixth consecutive weekly gain. On the S&P, energy stocks were the notable laggard, owing to declining oil prices. Tech companies got a boost from further enthusiasm around artificial intelligence. The Dow Jones ended the week marginally above the flatline while small caps outperformed large cap peers. Treasury yields ended little changed, with a surge in the 10-year Treasury yield on Friday, after the jobs report offsetting previous declines.
European markets were also higher on increasing bets that central banks were done with rate hikes. The pan-European STOXX 600 added 1.3% for the week, briefly touching its highest level since February 2022 on Friday. Travel and leisure stocks were amongst the best performers on the index while miners and energy lagged. Germany’s DAX index rose 2.2%, hitting an all-time high, while the UK’s FTSE 100 saw a more muted gain of 0.3%. Government bond yields turned lower, with dovish comments from European Central Bank policymakers fuelling hopes that the central bank could start cutting rates in the first half of 2024. This coming week will be a busy one for central banks, with the Bank of England, Swiss National Bank and ECB meeting.
Chinese markets were once again weaker, with the Shanghai Composite declining 2.1% and the Hang Seng retreating nearly 3%. Sentiment was hurt as Moody’s cut China’s sovereign debt rating to “negative”, saying that costs to bail out local governments and state firms could weigh on its economic growth. This overshadowed an improvement in the Caixin services PMI, while trade data delivered a mixed picture of better-than-expected export growth and weaker imports. Japanese markets were also lower, whereby the Nikkei 225 dropped 3.4%. The yen had surged over 2% to hit a three-month high against the US dollar following comments from Bank of Japan governor Kazuo Ueda that prompted speculation the central bank could be preparing to adjust its ultra-loose monetary policy.
Weekly macro highlights
US non-farm payrolls increase in November
US non-farm payroll employment rose by 199,000 in November, above the 150,000 increase registered in October and market expectations of 180,000. Employment growth was below the average monthly gain of 240,000 over the last twelve months. Healthcare, government and manufacturing added 77,000, 49,000 and 28,000 jobs respectively. Notably, 30,000 motor vehicle and parts workers returned from strike in November. Excluding these workers, employment in manufacturing would have declined by 2,000 jobs. Retail trade employment fell by 38,000 in November, with department stores making the largest contribution to the decline. In addition to the establishment survey data, the household survey showed the unemployment rate declined from 3.9% to 3.7%, reflecting both a drop in unemployed persons and an increase in the civilian labour force. Average hourly earnings for all employees on private non-farm payrolls rose by 0.4% in November to USD 34.10, a level 4.0% higher than in November 2022.
Eurozone PMI signals November contraction
The eurozone composite PMI rose from a thirty-five-month low of 46.5 in October to 47.6 in November, remaining below the 50 level that separates expansion and contraction for the sixth consecutive month. Within the eurozone, France registered the steepest contraction, with its composite PMI coming in at 44.6. Germany, Italy and Spain recorded composite PMIs of 47.8, 48.1 and 49.8 respectively. Ireland was the only monitored eurozone economy to register an expansion in November, with its composite PMI of 52.3 marking a three-month high. The slower rate of contraction for the eurozone composite PMI reflected a marginal improvement in demand conditions. Despite new orders falling at a slower pace, firms still cut back on hiring, with employment falling for the second consecutive month. Input and output prices both rose at a faster pace in November than in October, though the increase in input prices was more profound than that of output prices.
Tokyo inflation falls in November
Tokyo headline CPI inflation declined from 3.3% year-on-year (YoY) in October to 2.6% in November. The data marked the lowest headline inflation reading for Tokyo since July 2022. November’s drop in headline inflation reflected smaller YoY price increases for fresh food, with the 9.4% rise below the 16.4% registered in October. Core inflation, which excludes fresh food, rose 2.3% YoY. This was below the 2.7% YoY increase in October and market expectations for a 2.4% rise but represented the eighteenth consecutive month it has been above the Bank of Japan’s (BoJ) 2% objective. Notably, services prices, which the BoJ has highlighted as a key indicator of sustainable demand-driven inflation, rose from 2.1% YoY to 2.3% YoY in November. The BoJ will pay close attention to this data given inflation data for Tokyo is highly correlated with nationwide inflation data, for which November’s numbers will not be released until after the central bank’s meeting on 19 December.
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