The Daily Update - Non Farm and the Fed

Tonight at midnight the Feds blackout period begins ahead of the 18th/19th December meeting. Interesting that the probability of a hike at that meeting fell to below 70% yesterday when just three weeks ago the market had a 95% take on a hike. Fed Governor Lael Brainard is the last scheduled Fed speaker before the blackout tonight in Washington.

Yesterday we heard from the Atlanta Fed president Bostic a voting member of the board who thinks the Fed should be taking a more neutral position. He noted that he is not seeing ‘clear signs of overheating’ nor is he seeing ‘any indications of a material weakening of the macroeconomic data at the moment’. We also heard from Dallas Fed president Robert Kaplan who is not a voting member of the board until 2020 but is widely respected. He was counselling patience as the Fed moves into next year against a background of slowing growth and little evidence that inflation will take off. He further commented that he’s ‘had a lot of confidence that we should be moving along with raising rates, but at this point, you’re going to hear me be a lot more cautious’. Broadly, his comments move away from the pre-set policy approach and more towards data-dependency.

And that brings us nicely to today’s data the all-important Non-Farm Payrolls for November the market was looking for 198k headline number and the actual release was 155k with a two month net revision to previous data of -12k. The unemployment rate was stable at 3.7% with Average hourly earnings at 0.2% on the month making the year on year rate at 3.1% weaker than expected and a supporting factor for the recent fall in yields across the curve.

Broadly, a report weaker than expected by the market, however, this report is not going to give Messer’s Kaplan and company a clear insight into the future trajectory of the economic outlook. Bonds are virtually unchanged after a week of falling yields now all eyes are on the stock market with the futures contracts indicating a small down move at the open.

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