A look at the day ahead in U.S. and global markets from Mike Dolan
With investors trying to read recessionary warnings from softening U.S. labor market signals all week, the outsize importance of the November payrolls report to next week's Federal Reserve meeting has frozen frenetic markets in advance.
It's hard to imagine the numerous employment soundings this week showing a loosening of the labor market will be contradicted by the overall employment report. However, the extent of markets' rate cut euphoria means it will all be a matter of degrees.
The standing consensus forecasts are for a 180,000 rise in non-farm payrolls last month, an unchanged jobless rate at 3.9% and a cooling of annual wage growth to 4.0%.
But this week's private sector jobs report for the same month was below forecast, weekly jobless crept higher, layoffs are rising sharply, job openings fell faster than expected for October and employment costs were revised down.
But a curious twist this month centres the closely-watched 'Sahm rule' threshold, that has historically shown recession is underway when the three-month rolling average unemployment rate rises half a point above the low of the prior 12 months.
Developed by Fed economist Claudia Sahm before the pandemic as a potential rule of thumb for triggering benefit payments - the gauge hit 0.33% last time out for the first time since March 2021 and could sound the alarm if November's jobless rate tops 4%.
An added complication reading the report is the ending of the autoworkers and actors' strikes that have distorted jobless readings somewhat.
About 25,300 members of the United Auto Workers union ended their strikes against Detroit's "Big Three" car makers on Oct. 31, which had depressed manufacturing payrolls that month. Payrolls also likely got a lift from 16,000 members of the SAG-AFTRA actors union going back to work.
All of which has markets consolidate the week's strong bond and stock gains on Friday, driven largely by headlong market bets on Fed easing next year. Fed futures now see more than a 50% chance of the first Fed rate cut in the cycle coming by March, two quarter point cuts by June and 125 bps of easing by the end of next year.
While two-year Treasury yields have been a bit more reserved this week, 10-year yields tested 4.1% for the first time since June - before backing up about 7 bps today ahead of the jobs report. But the big swings in Treasuries have spurred volatility gauges to the highest since October.
Wall St stock futures were steady before the bell after a strong rally on Thursday led by tech stocks and a 5% surge in Alphabet (NASDAQ:GOOGL) after it said its new artificial intelligence model could help narrow the gap in a race with Microsoft-backed OpenAI.
The dollar perked up a bit on Friday too, even against the electrified Japanese yen - which soared almost 4% at one point on Thursday on a sudden bout of speculation that the Bank of Japan could tighten monetary policy again as soon as this month.
However, that chatter was dampened by a sharp downward revision to Japanese economic growth data for the third quarter.
Japan's economy contracted 2.9% - faster than the 2.1% drop first estimated as the household sector faced growing headwinds and complicating the central bank's efforts to phase out its super easy monetary policy.
Dollar/yen pushed back above 144, having hit a low of 141.70 at one point on Thursday. Tokyo's benchmark Nikkei underperformed largely firmer world stocks and lost more than 1% on Friday.
The waning U.S. crude oil price - now down 27% since the peaks of September and encouraging disinflation and rate cut hopes - steadied and tried to get a toehold back above $70 per barrel.
Key developments that should provide more direction to U.S. markets later on Friday:
* U.S. November employment report, University of Michigan Dec consumer sentiment and inflation expectations survey
* ECOFIN EU finance ministers meet on blocs fiscal rules, attended by European Central Bank board member Luis de Guindos
* U.S. corporate earnings: Hello Group, Johnson Outdoors (NASDAQ:JOUT), HashiCorp (NASDAQ:HCP)
(By Mike Dolan; Editing by Toby Chopra)