Week Ahead: NFP to direct December Fed rate decision

It’s the first week of the final month of 2024. The beginning Friday of the month means we get a US employment report. This marquee data is always important and will be once again as the mid-December FOMC meeting looms large. Money markets currently favour a 25bps rate cut, but there is a one in three chance of a pause. That means these labour market figures will be instrumental in swaying policymakers. The dollar finished off a decent November with its first down week in nine weeks. Prices have slid below long-term tops from April 2024 and October last year at 106.51 and 107.34 respectively. Initial support may come at the 50-day SMA at 105.85. Much will depend on NFP in the near term ahead of the holiday period.

Markets may also be subject to more volatility around President-elect Trump’s nominations and any tweets in the coming days. Last week, he announced tariffs on Canadian, Chinese and Mexican goods coming into America on his first day in office. This was seemingly a tactical ploy as progress with Mexico and its border was then announced a few days later. It all means we should be on our guard for more policy by social media at the very least.

We will be paying attention to any geopolitical news after Israel and Hezbollah agreed on a ceasefire last Wednesday. Israel could consider its mission in Lebanon accomplished, with most of the Hezbollah leadership eliminated and much of its arsenal destroyed. While the truce in Lebanon is a sign of hope in a region plagued by conflicts, there is a long road to sustainable peace. French political risks have ratcheted up recently and caused the German-France government bond spread to its highest level since 2012. A collapse of the government is possible which is really not what the euro needs at this point.

In Brief: major data releases of the week

Monday, 2 December 2024

– US ISM Manufacturing: Consensus sees the November data rising to 47.5 from 46.5. That was its lowest level since July 2023 and reflected the Boeing strike. Regional surveys are signalling improved manufacturing conditions. Hopes are that pre-election uncertainty may reverse.

Wednesday, 3 December 2024

– US ISM Services: Expectations are for non-manufacturing ISM to slip to 55.5 from 56.0 in October, which was a more than a two-year high. Services activity remains firmly in expansionary territory while employment strengthened.

Friday, 6 December 2024

– US Non-Farm Payrolls: The headline is expected to print at 200k, well above the prior weather and strike impacted 12k. The jobless rate is forecast to tick up one-tenth to 4.2% and average hourly earnings tick down one-tenth to 0.3%. Economists say the technical rebound from hurricanes and strikes is likely to be around 110k.

– Canada Jobs: Analysts forecast around 20k jobs to be added, slightly more than the prior 14.5k and the unemployment rate to print at 6.4%. The labour market has been resilient all year long with over 270k jobs created so far. The loonie has been pummelled in recent weeks on the Trump tariff threats. The resurgence of inflation has seen the probability of a BoC 50bps cut revert to around 20% at its meeting next week.